Procurri Corporation Limited

Procurri Corporation Limited ("Procurri" or the "Company") is offering 68.88m new shares comprising 62m placement shares and 6.88m Public shares at $0.56 each. It has been a long while since we see a non-REIT listing on the main board.

The IPO will close on 18 July 2016 at 12pm and start trading on 20 July. The market cap of Procurri based on the IPO price is around $156.8 million.

The Company is a leading global independent provider of Data Centre Equipment and Lifecycle Services and aims to be the global aggregator. 

The name Procurri is derived from a Latin word and has the meaning of "leading the pack" and the tagline, changing the way the world buys technology, succinctly sums up its mission to be the global aggregator of enterprise hardware and services to its channels. 

Still don't understand what Procurri do? (me neither). Here is another pictorial attempt below but watching the corporate video may help slightly.

Financial Highlights

I have to say that the growth figures looks good no matter which angle i view it from. 

• Revenue grew by an impressive CAGR of 108% from $28.4m in FY2013 to $122.8m in FY2015
• EBITA grew from $3m to $13.6m during the same period and 
• Net profit grew by a CAGR of 112% from $2m to $8.8m 

The impressive growth came via a series of acquisitions made by the Company

Looking at the detailed P&L, while Procurri enjoys a healthy gross margin of 33%, the net margin is actually quite "tight" at around 7%.

It is hard to project how FY2016 revenue and earnings will "look like". 

Assuming everything grow by 50%, the EPS will be around 3.1 cents x 1.5 = Singapore 4.65 cents

Valuation

Based on the pre and post enlarged EPS of 4.2 cents and 3.1 cents, the Company is listing at a historical PER of 13x to 18x.

The Enterprise Value is around $142.658m and based on the EBITDA of $13.6m, Procurri is valued at around 10.49x EBITDA, which is fairly priced.

If EPS grow to 4.65 cents (i am guessing), the forward PE will be around 12x. Assuming a PE range of 11-15x, the fair value will be between 51 to 70 cents. 

Dividends

The Company intends to distribute 25% of its net profit after tax for FY2016 and FY2017 as dividends.

Assuming the EPS is "stagnant" at 3.1 cents, the dividend per share will be 0.25 x 3.1 cents = 0.775 cents. That will translate into a yield of around 1.38%.

Competitors

Use of Proceeds

You can see that the bulk of the fund raising is going towards acquiring new companies for growth.

Shareholders

Declout is the major shareholder at 46%  with public investors at 24.6%. 

What i like about the Company

• Fast growing business segment with impressive CAGR
• Scalable business with revenue coming from three regions globally
• Experienced management team with significant stake in the business
• Intending to pay dividend for the next 2 years
• Mainboard listing with DBS as Issuer

Some of my concerns

• Low net margin of around 7% as it is a competitive industry
• It has been growing through M&A and integration of new acquisitions may not be easy
• It will continue to raise cash or issue shares to finance new acquisitions
• Tinglobal is a major subsidiary incorporated in the UK. The impact of Brexit on Procurri is unclear at this juncture

Mr IPO's ratings

I took the whole day to write this but couldn't decide on what "chilli ratings" it should get. On one hand, i quite like the company for its mainboard listing, letting retail investors participate and for its fast growing global business. In addition, DBS is always quite picky on its IPO mandate and its "endorsement" of Procurri is a positive thing. 

On the other hand, i am concerned about the high valuation and whether the growth is sustainable. Based on the IPO price and historical EPS, Procurri is probably fair valued. I also wonder why investors are not "rushing" into Declout if it is going to make a windfall on this. See article by NRA here.

I tried to get some placement shares but it is already closed. I also understand the demand has been pretty "hot".  I am going to give Procurri a 2 chilli ratings for the upcoming IPO but 1 chilli for the longer term as it really depends on whether the revenue and profitability is sustainable. 

It is a hit and run for me.  Happy Procurring. ^_^