NCB Capital Markets Limited (NCBCM) has recommended its clients participate in Productive Business Solutions Limited's (PBS) US$11-million ($1.69-billion) perpetual cumulative redeemable preference share offer which closes this Friday.
PBS intends to use the proceeds from the offer to fund its strategic growth objectives which include acquisitions and expansion into new territories. PBS is a technology distribution company with more than 2,200 employees spread across 19 countries in the Caribbean and Latin American region. Under the acronym PRINTS, 'PR' stands for printing, 'I' for imaging, 'N' for networking, 'T' for (information) technology and 'S' for security and services, which explain the range of services PBS offers.
The company's United States dollar (USD) preference share are priced at US$10 per share with a 9.25 per cent interest rate and its Jamaican dollar (JMD) preference share priced at $1,000 with a 10.50 per cent interest rate. One million USD preference shares and 150,000 JMD preference shares are being initially issued subject to the company upsizing the offer by an additional 500,000 USD preference shares and 150,000 JMD preference shares for a raise of US$17 million ($2.61 billion). While there is no maturity date, the first redemption date through the call option is on December 31, 2036, before it renews every three years after that date.
The minimum number of USD shares which can be applied for are 50 units with increments of 10 units while the JMD shares have a minimum number of 100 units with increments of 50 units. Interested investors can apply for the offer through lead broker JMMB Securities Limited's Moneyline platform or on selling agent Barita Investments Limited's baritaboss.com.
NCBCM listed the strong focus on expansion, large and diverse customer base and various distribution agreements as investment positives. However, it listed risks such as interest rate risk, global supply chain disruptions and data breaches or other cyber-attacks. It listed the recovery of the economic activity in the markets PBS serves as a reason for increasing demand for PBS's offerings. NCBCM highlighted the shifts across various sectors towards greater digitalisation and, increased usage of technology and underinvestment in technology across the region as an opportunity for PBS to grow its market share and revenues.
NCBCM also recognised that partnerships across the region are expected to increase PBS' market share and demand for its products and services. This has been facilitated by the US$53.96-million acquisition of PBS Technology Group Limited in September 2021 which expanded its reach to new markets in the region.
"PBS is now a provider to the oil, gas and mining industries and received the renewal of the HSE certification from the National Advisory Council on Occupational Safety and Health, which is necessary to be able to work in the offshore rigs in Trinidad and Tobago as well as in Guyana. This opens up more opportunities for PBS, to further diversify its revenue streams and increase profitability," the NCBCM report stated.
Despite all these positives listed, NCBCM noted that a global downturn could adversely impact the economies PBS operates in and reduce business investments by different firms in technology. The report said, "Considering the Caribbean's reliance on developed markets, a recession could result in lower remittances to support regional consumption, and lower exports from companies affecting their profitability and liquidity. These factors could in turn reduce the projected demand for PBS' products."
When NCBCM compared the PBS JMD preference shares with the JMMB Group Limited (JMMBGL) 7.35 per cent preference share, TransJamaican Highway Limited's 8.00 per cent preference share and a Government of Jamaica (GOJ) 10 per cent instrument, the PBS preference shares had the highest yield compared to the GOJ's 7.80 per cent yield with redemption in 2037. When the USD preference shares were compared against the GOJ 8.50 per cent instrument, the PBS preference shares had a higher yield than the GOJ instrument's yield of 6.79 per cent.
"When compared to the current yield on JMMBGL 7.35 per cent preference shares [6.69 per cent] and TransJamaica 8.00 per cent preference shares [8.54 per cent], PBS 10.50 per cent shares offer a higher yield, which compensates for the longer redemption date. Further, relative to the GOJ 2037 which is of a close tenor relative to PBS's redemption date of 2036, it provides a favourable return with a yield pickup of 270 basis points. Similarly, the US tranche of the Perpetual Cumulative Redeemable Fixed Rate Preference offer of US$10 also offers an attractive return that is 246 bps above the USD GOJ 2036 bonds," the NCBCM report said on the comparison against other fixed income instruments.