Eurosports Global Limited ("Eurosports Global" or the "Company") is offering 80m shares of which 40m are new shares and 40m are vendor shares at 28c each. 78.5m shares will be available for public offer and 1.5m shares for the public.
The offer will end on on 15 Jan 2014 at 12pm and starts trading on Catalist on 17 Jan 2014.The market cap will be around $74.2m.
The Company was started by the Goh brothers and they specializes in the distribution of ultra-luxury automobiles. The brands they carry are primarily Lamborghini since 2001 and Alfa Romeo since 2004. 2 new automotive brands were added in 2012 and i have to say I am not familiar with those brands since i am not in that league. haha and even if i am in that league, i would probably not buy a Lamborghini.
The revenue for last FY declined from $113m to $86m and net profit dropped from $7.6m to $6.7m. The NAV of the company is around 7.35c versus the 28c paid by investors.
Based on the earnings of $6.7m, assuming service agreement was in place and based on enlarged share cap of 265m shares, the EPS will be around 2.18 cents and that translate into a historical PER of 12.8x.
Q1 FY 14 continue to show a decline in revenue and net profit over the same period last year and i am not privy to the current financial performance.
Post the IPO, Melvin will own 41.9% and Andy 27.9% with the balance of 30.2% held by the public. Effectively, no outsiders can take over the company as the majority ownership is still held by the brothers.
The Company intends to sell and lease back its Teban Garden showrooms and pay a dividend of between $6m to $8m. I am not sure if that is a good move as it will subject the company to market rates and the majority of the payout will go back to the founders anyway. A $6m payout will translate into a yield of around 8% based on the IPO price but there is no formal dividend policy thereafter.
What I like about the Company
- Allow Lamborghini fans to have a chance to own a small piece of the action :-P
- Small float means easy to place out to the towkays who buy the cars from them. Each car probably cost more than $1m and I am sure they know many towkays in Singapore who can help support the stock.
- Company is highly dependent on the distributorship from Lamborghini. The manufacturer is able to terminate the agreement at anytime with a 12 months notice period.
- Car industry is a competitive one. The other competitors in the ultra luxury market will probably be Ferrari, Bentley, Maclaren, Aston Martin and to a lesser extent Maserati and Porsche.
- Limited growth prospects unless they can acquire other brands.
There are no similar peers that i can think of locally except TCIL (Tan Chong International). TCIL is trading at good value of around 6x PE, a discount to book value and a yield of 3% but they are targeting different consumer segments. Investors should seriously do their homework if they want to buy Eurosports for the long term and compare it with TCIL while punters don't really care since 28c is a nice number. My view is that if they do the placement well, the company should open above 30c and it is supported by a special dividend. However, i will give it a miss since i don't really like the car's design, limited growth prospect and declining profit trend. I will give it a 1 chilli rating - buy only if you like Lamborghini cars.