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Thursday, 11 October 2012

Geo Energy Group

Geo Energy Group ("Geo" or the "Company") is offering 289,264,000 shares at $0.325 each. 3m shares will be via public offer and the balance 286.264m via private placement. 258.348m New Shares will be issued and the Vendors are selling 30.9m shares. The market cap will be $376m.

My initial preview is here and the final registered prospectus is here. The IPO will close on 17 Oct 2012 at 12pm and starts trading on 19 Oct 2012.

Geo is a coal mining group in Indonesia. Its main business will be to own and operate its own coal mines as well as offer contracting services to 3rd party mine owners. They sell the coal to coal traders and coal export companies.The mines are located in Kalimantan.

Pro Forma Financial Results

Revenue has been increasing "dramatically" from US$13.6m in FY2009 to US$69.2m in FY2011. The profit attributable to owners also increased dramatically from US$1.24m to US$14.3m during the same period.

Using the post-invitation EPS of US 1.24 cents (convert at 1.22) = Singapore 1.51 cents. That translate into a listing PER of 21.5x. (expensive!).

I am guessing

Assuming the FP2012 results are indicative of the profit trend which shows an improvement of 80% (which i cannot understand why because the coal prices are on a declining trend and coal sales increased by only 16%).... but nevertheless, i will assume the EPS increase by 50% for FY2012, the EPS will be 1.51 cents x 1.5 times = Singapore 2,265 cents. This translate into a forward PER of 14.3x

Just to recap, Sakari is in the process of being delisted at a PE of around 13-15x PER. It has been trading at cheap single digit valuations prior to the buyout offer. 

Thus on one hand, we see Sakari trying to delist from our market due to its cheap valuation and was offered 14x PE to delist itself, on the other hand, we see another coal company trying to list on our market at 21x historical PER. Is there a disconnect somewhere?

Peer Valuations

Goldman issued a Coal report on 9 Oct 2012. 

Given that most coal miners are current trading at 10.4x 2012PE and 10.5x 2013 PE, i think there are enough cheaper options out there for investors to pick on. The easily availability of coal supply and softening coal mine prices offer no comfort.

Coal price

Big share float

The large share float is also a concern for me as it will flood the market with shares and the fact that the vendors are cashing out only $10m also makes me wonder why they even bother to do that as it creates a bad "signalling" effect and it is due to the pre-IPO investors.

Pre-IPO investors

There are many pre-ipo investors who bought at different prices of 16.25c, 19.50c, 22.75c and IPO investors are coming in at 32.5c. These pre-IPO investors will have a wider margin to play with and will also exit profitably even if share price moved below 32.5c after 6 months. These pre-IPO investors are currently cashing out at the IPO price to hedge their risk.


I will give it a miss and a chopped chilli rating. Of course, that is my personal opinion.  

Happy IPOing.


callmebad said...

You're correct indeed. Coal price is not going to show much gains. Growth in demand for coal will slow down in China in line with its slower economic growth rate. With its railways improve, China has lesser demand for imported coal.

If this IPO came out 1-2 years back, will be better, coming out at the worst time when everyone is slowly recognizing that the super boom cycle for commodities may have already been ended.

Mr. IPO said...

Thanks for the comments mr. Bad.

Swee Chye said...

All prospectus are made to look good to entice the naive investors to buy, w/o critically looking at the numbers and analyse it.

After the dust has settled down, the quarterly reporting will then reflect the true picture and the sales, revenue, and profits will all come down.

Anonymous said...

issue so much shares yet co dun even have a website, scary.
another seroja?

DT said...

Hi, a comment.

From the prospectus, in the Risk Factors, post 30 Sept 2012, GEO's main business will only be, its own mine owner and operator.

If I understood correctly, they cannot sub-contract their mines out to 3rd party, nor sub-contract as a 3rd party from other mine-owners.

ie. The coal licensee have to own and operate their own coal mine.
So this IPO is in effect to "fund" their own business operations.

So basically, they can only profit from the sale of their own coal produced, less the costs.

Does the above differ from your comment?

Mr. IPO said...

I have treated geo as if it is a coal owner and mining it's own mine. Nevertheless this IPO only has 3m public shares so it will be very difficult to get anyway. One kind reader told me it will open above 40c which frankly I won't be surprised if they have placed them out to syndicates but I don't know any syndicates or the details. :) so thread with care if you have bought because of that investment thesis. It might work in the short run but fundamentals will prevail in the longer run. Happy punting.

Anonymous said...

Sakari is being privatised at 14x PER. The major shareholder of Sakari must be of the view that at 14x PER is cheap and it stands to reap potential significant gain in the years to come, as this major shareholder IPO the company years ago at much lower prices and now try to privatised at a much higher price today. Coal prices have corrected significantly over the last 6-12 months. Unless one is of the view that coal prices have yet to see its bottom, downside risk from here appears limited and if economy and commodity prices start to recover due to the extensive monetary easing by Federal Reserve, ECB, JCB and central bank of China, being the only pure coal play left (after Sakari privatisation) on the SGX, it is clear as to the future direction of the share preformance.

Mr. IPO said...

Well that is one point of view. But if the market is unwilling to give sakari a higher valuation which results in it being privatized why should geo deserve a better valuation than sakari? Maybe u can help enlighten me as to when geo is better than Sakari?

Anonymous said...

Geo will definitely outperform on the first day of trading. On that basis alone, its worth 3 chillis.

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