With its New York-based acquisition targets publicly announced, Derrimon Trading Limited’s (DTL) $3.5-billion additional public offering (APO), underwritten by lead broker Barita Investments Limited, has gained stellar reviews from the investment brokerage community which have all given DTL buy, outperform, overweight and acceptance recommendations in their analysis of the APO.

The company operates Sampars Cash and Carry and its proprietary Delect brand is engaging in its second equity offering following its initial public offering in December 2013 where they raised $150.3 million.

The offer is up sizeable to 1.8 million units for a consideration of $4.22 billion and will be used to fund its expansion into Clarendon and reduce its debts as the company moves to accelerate its growth.

With COVID-19 benefiting the DTL’s line of products which includes subsidiary Caribbean Flavours and Fragrances (CFF), net profit attributable to shareholders grew by 27 per cent to $258.6 million and was expected to surpass the 2019 results based on demand for its products.

These factors along with the prospects for the company led eight out of the 13 licensed brokers to give DTL their stamp of approval with fair value prices ranging from $2.74 to as high as $4.18.

The minimum upside from any broker was at least 15 per cent for the 2021 financial year with an outlook for sizeable growth over the next two years with Credit Union Fund Management Company projecting a net profit of $703.15 million.

NCB Capital Markets Limited, Scotia Investments Limited, JMMB Securities Limited, VM Wealth and GK Capital Management all obtained fair values above $2.70 but below $3, which was under conservative valuation methodologies when compared with other entities on the main and junior market of the Jamaica Stock Exchange (JSE).

Despite a major hurdle of DTL’s 50 per cent tax remission being at risk due to surpassing the $500 million share capital base, the Jamaica Stock Exchange has given DTL permission to remain on the junior market once they pay main market listing fees which would afford the company two more years of tax remissions.

Proven Wealth and JN Fund Managers (JNFM) obtained fair values of $3.41 and $3.21, respectively, for the APO which both have given 40 and 34 per cent upside to the general public price of $2.40.

This is under the rationale and performance of DTL whose APO closes on January 26.

“Over the last five years DTL has delivered an average return on equity greater than 25.0 per cent with the skilful use of debt to grow its operations. With the proceeds of this APO, DTL plans to acquire two companies in the United States (US) to further its growth and significantly reduce its financial leverage below its industry average.

“We anticipate that these steps will lead to improve profitability from the integration of the profitable US subsidiaries, synergies to be formed from their integration and that this APO will enhance its capacity to grow both organically and inorganically in the future. DTL will also benefit from the reduction in interest expense from the paydown of debt as it continues to find ways to improve its operating efficiency,” stated the JNFM’s report on the APO.

“Our projections have factored in the consistent profitability fuelled by organic growth supported by the expected tailwinds associated with improvements in macroeconomic conditions over the next five years.

“Net profit is expected to move to $708.6 million (EPS: $0.16) and $990 million (EPS: $0.19) in 2021 and 2022, respectively. As a result, we have projected 30 per cent revenue growth for FY2021 and 20 per centfor FY2022. Compared to the offer price of $2.40, this presents an upside of 40.08 per cent. The forward dividend yield is calculated at 1.5 per cent compared to the offer price. This presents a total return of 41.58 per cent which makes the offer attractive to both existing and new shareholders in the APO,” the Proven Wealth analyst report stated.