Katrina Group Ltd ("Katrina" or the "Company") is placing out 35.8m placement shares at $0.21 each for a listing on Catalist. The IPO will close on 22 July 2016 at 12pm. The market cap is around S$48.6m based on the IPO price.
Katrina is an operator of restaurants and cafes under different F&B Brands and concepts. The portfolio of names under Katrina are listed below
It has a portfolio of 34 restaurants.
Financial Highlights
Based on the enlarged share cap and assuming service agreement is in place, the EPS will be 1.51 cents. This translate into a historical PER of around 13.9x.
Dividends
The Company intends to not less than 60% of net profits to shareholders for FY2016 as dividends. Assuming EPS remained at 1.51 cents, that will translate into yield of 4.3%
Use of Proceeds
The Company intends to use the proceeds to expand its business and for general working capital.
What i like about the Company
- Can be highly profitable if the location and pricing point is right
- The businesses are highly cashflow generative
- Intention to pay 60% of its profits for FY2016 as dividend
- Simple and easy to understand business and structure
- Expansion into China in a thoughtful way will be highly profitable (like Jumbo?)
Some of my concerns
- Operating restaurants is not an easy business and relies heavily on manpower for its operations.
- The restaurants are "subjected" to higher rental revisions from time to time
- Singapore consumers are fickle and picky and constantly seeking new experiences
- Huge dilution to the NTA
- While the couple controlled 84.6% of the company provides strong alignment of interest, it may be a tad too high turning it into a "family owned" business
- i have never actually ate at these restaurants
What the peers are trading
| Historical / Current Year PE | Forward PE |
| ABR Holdings | 18.3 | NM |
| Breadtalk | 42.2 | 23.16 |
| Japan Food | 13.21 | 16.62 |
| Jumbo Group | 32.07 | 25.07 |
| Sakae Group | NM | NM |
| Tung Lok | 43.1 | 45 |
| (Source: CapIQ) | 29.776 | 27.4625 |
While the peers are trading at rich valuation, it doesn't mean they make good investments. In fact, i think the whole sector is "over-valued".
Assuming a more "reasonable" historical PE of 17x-20x, it would imply the "fair value" of Katrina is around 26 to 30 cents but if the valuation goes towards the "crazy level of 25-30x, then the price will be around 37 to 45 cents.
My Chilli ratings
Personally, i don't really like this sector for reasons mentioned above. The analysis highlighted that the entire F&B sector is "over- valued". Based on the peer valuation,the IPO should at least see a decent debut worthy of at least 2 chillis. Since there is no public tranche, my rating is not really important. ^_^
Happy IPOing
Comments
also what is your guess for opening price?
Considering the company is raising $7.5mil through this placement, shouldn't this $7.0mil dividend payment to existing shareholders raise some concerns?