Advancer Global Limited ("AGL" or the "Company") is offering 43m new shares at $0.22 each for a listing on Catalist. The offering comprise 2m shares for the public and 41m shares via placement. The offer will close at 12pm on 7 July 2016 and starts trading on 11 July 2016 at 9am. The market cap based on the IPO price is $38.1m,
AGL is an established and diverse integrated services provider offering the following business services:
- Employment services - one stop shop for sourcing, employment and training of Foreign Domestic Workers ("FDWs") to households
- Cleaning and Stewarding - integrated cleaning and stewarding solutions for hotels, hospitals, commercials and residential properties
- Security Services - provide security guards to properties
The Company is an established name and all three businesses are profitable and generating recurring income. The Company also intend to pay out 50% of its net profit for FY 2016 to FY2018.
The Company showed a nice CAGR of 12% growth in revenue over the last 3 years and a CAGR of 30% in profitability! As of 2 June 2016, the Company has order book of $43.1 million.
The Company's EPS is 2.52 Singapore cents based on the enlarged share capital for FY 2015. That translate into a historical PER of 8.7x. Assuming EPS grow by 10% in FY 2016 (i am guessing), the post enlarged EPS is around 2.772 Singapore cents. If the payout if 50%, the Dividend Per Share will be 1.386 Singapore cents. Based on the IPO price of 22 cents, that translate into a yield of 6.3%.
According to the prospectus, the order book is $43.1m for Cleaning and Security businesses of which $29.1m is to be fulfilled within FY2016. For a more conservative estimation, assuming the ratio among the 3 business segments remained unchanged, the "implied revenue" is around (29.1m divide by 0.714) = $40.7m. Using a net margin of 9.7%, the net profit will be around $3.95m. Based on the enlarged share cap, the EPS will be Singapore 2.28 cents, of which the dividend per share is around 1.14 cents. This translate into a yield of 5.1%.
Use of Proceeds
The Company intends to use the proceeds for the following uses:
The Chin brothers hold around 60% of the company and the public float is quite decent at 24.83%.
What I like about the Company
- The business are stable, recurring and recession-proof as you will require these services in good or bad times. There is also growing demand for such facilities management services due to the increasing number of condominiums in Singapore
- The businesses are aligned to one another and provide cross synergies. For example if the Company provides security guards to a condominium, they can also tender for the cleaning services.
- Nation Employment (with Xiang Yun as the spokesperson) is probably the most "well known" asset and actually earns a "royalty fee" for its use in Malaysia and PRC!
- The Company has been paying dividends regularly since FY2013 and has agreed to pay 50% of its profit as dividends for the next 3 financial years. This helps provide strong alignment of interest between management and new investors
- Simple and easy to understand business structure with no pre-IPO investors trying to cash out
- While business is highly specialized and catered to the Singapore market, scalability outside Singapore is probably limited. However, the Company has demonstrated that the "Nation" brand is licensable outside Singapore
Some of my concerns
- The auditors, Mazars LLP, is a non "big 4" audit firm
- The supply of FDWs is always subject to changing laws, regulations and policies in both Singapore and the countries which the foreign labour originate
- Scalability outside Singapore
It is definitely not easy to find a comparable since Nation has one of the biggest market share locally in FDWs. The next closest peer in the security space is Secura Limited (see my post here). The Secura Group is currently trading at 18.8x PER. Assuming a more conservative EPS of 2.28 cents and using a fair value range of 10-12x PE, it will imply a fair value of 23 cents to 28 cents. Assuming EPS increases to 2.772 Singapore cents, the fair value range will be 28 cents to 33 cents.
I quite like Advancer for the following reasons:
- Attractive entry valuation of 8x PE
- Dividend yield of more than 5%
- Stable recurring income
- Strong alignment of interest between management and investors
SAC Capital was most recently involved in another successful IPO, Acromec, which i rated 2 Chilli. Acromec has since tripled in share price. ^_^
I understand the placement was very well received and attracted institutional money. I also like to support IPO companies that have a public tranche even thoiugh the tranche of 2m is very small. Investors who want to try their luck at ATM will have to bid at least 50,000 to 100,000 shares to make it worth the effort.
Based on the above reasons, i am going to give Advancer a 3 chilli rating. I believe the IPO should be well received and will enjoy a nice pop on debut. Do note that Mr. IPO is vested.