One Great Studio Company Limited's (1GS) $338.63-million initial public offering (IPO) has garnered five 'participate' recommendations from the brokerage community ahead of the offer opening tomorrow morning at 9 am.
As the first IPO of 2023, One Great Studio's offer will be the litmus test of the market's appetite for public offerings as investors shift capital to more fixed income opportunities. The offer, which is priced at $1 per share, has 169.31 million ordinary shares available for the general public while the remaining shares are set aside for key strategic partners and team members.
VM Wealth Management Limited (VMWM) was the first broker to release a report on the IPO where it gave a price target of $1.08 based on the evaluation of the company's current position and projections for the immediate future. While the price target was the most conservative among the brokers, some investment positives highlighted included the inorganic growth from the overseas acquisition, Jamaica's transition to more digital infrastructure and channels and the compounded annual growth rate (CAGR) of revenue at 82.68 per cent over a four-year period.
"In light of this, we continue to be cautiously optimistic about 1GS's potential to generate revenue, which depends on keeping strong client relationships, managing HV SEO well over the long term, maximising the company's capacity to cross-sell items, and renewing contracts every six to 12 months. We therefore advise investors to take part in this offer since the stock has some growth potential in the short- to medium term," said the VMWM report.
Proven Wealth Limited (PWL) gave a price target of $1.17 for 1GS which speaks to a potential 17 per cent upside. PWL used a probability-weighted model factoring three different cases which resulted in a price to earnings (P/E) target of $1.11 while the dividend discount model returned a $1.23 price. Some of the constraints that impacted on the P/E valuation were the uptick in market interest rates and how tightly held the stock is among the top 10 shareholders.
Some of the positives highlighted for the company included successful rounds of private capital funding, it being a founder-led business with skin in the game and diverse income streams from the perspective of product mix, currency and geography. However, some negatives also included the key man risk from it being founder-led and relationship sensitive nature of the industry, competition in the marketing subsector and high sensitivity to potential impairment of receivables given the contractual nature of the business model.
GK Capital Management Limited (GKCM) used a discounted cash flow approach which produced one price of $1.27 while the comparative market approach yielded $1.57, the highest among the broker reports. The strong growth projections by the company along with analysis of the historical financials formed part of the broker's participate recommendation.
"Given the diligent analysis of both historical and projected future earnings, as well as a comprehensive assessment of the dividend policy, it is recommended that investors participate in the upcoming initial public offering (IPO). The estimations suggest that the company has the potential to provide shareholders with a substantial range of total returns, the stock is expected to provide above market return ranging from a 27 per cent to 57 per cent for the fiscal year 2023. This represents a compelling investment prospect," stated the GKCM report.
If 1GS is successful in its offer and lists on the Junior Market of the Jamaica Stock Exchange, it would be the 49th company to list on the Junior Market since the first listing in October 2009. The company would also benefit from a 100 per cent tax remission in the first five years and 50 per cent tax remission for the remaining five years. The IPO proceeds are to be used to reduce debt owed to arranger and shareholder Barita Investments Limited, develop human capital and assist with strategic growth initiatives which includes adding new business lines and expanding regionally.
The digital agency brought in $238.93 million in revenue for 2022 which was translated into $23.66 million in net profit. During the first quarter ending March 31, the company's consolidated revenue stood at $114.94 million with the business earning $22.99 million in net profit. 1GS projects that it will grow its 2023 revenue to $538.35 million with net profit climbing to $119.98 million. Total assets at the end of March were $523.77 million with shareholders' equity at $180.96 million. Investors can apply on Barita's Boss platform or JMMB's Moneyline platform before the September 18 closing date.