Latest IPO: SSI Group Inc.
Tentatively priced at P12.50 each when first proposed, shares of SSI Group Inc. are now available for subscription with the final offer price of P7.50 a share.
The public offering period started Monday, Oct. 27, and will end on Friday, Oct. 31. It is tentatively scheduled for listing not later than the following Friday, Nov. 7, with the trading symbol of SSI.
The offering
As amended on Aug. 29, 2014, the company’s authorized capital is P5 billion divided into 5 billion shares with a par value of P1 a share. A total of 2.62 million shares or 52.4 percent are issued and outstanding.
The initial public offering or IPO entails the sale of 864.23 million common shares equivalent to P6.48 billion and broken down as follows: 695.71 million or P5.22 billion of primary or newly issued shares and 168.52 million or P1.26 billion of secondary or previously owned shares. This will bring the total outstanding and issued shares to 3.32 billion shares or 66.4 percent of authorized capital.
The public offering may be upsized to P7.45 billion to meet stronger-than-estimated demand for the issue. At the company’s offer price of P7.50 a share, this will entail the additional offering of 129.63 million shares for the purpose—otherwise known as “allocation for oversubscription.” This will bring the total offer issue to 26.1 percent of authorized capital.
The pricing got approval from the Securities Exchange Commission (SEC) after the company received what is referred to as “cornerstone commitments” for 34 percent of the offered shares from institutional investors, among which are Bank of the Philippine Islands Asset Management and Trust Group, Government Service Insurance System, Havenport Asset Management Pte Ltd., Macquarie Asia New Stars Fund, MLIS-York Asian Event-Driven UCITS Fund and York Asian Opportunities Investment Master Fund.
The major part of the net proceeds will be used to grow the company’s global brands and retail presence in more locations in the country as well as equity infusion for the further expansion of FamilyMart and Wellworth stores.
Also, about P395.7 million of the net proceeds will be used for additional operational purposes while P1.5 billion will be used to pay a number of financial obligations with banks.
The company
Established in 1987, SSI is the specialty store arm of the Rustan’s group of companies controlled by the Tantoco family.
SSI has the biggest store network for a broad “portfolio of leading brands in the luxury, bridge casual wear, fast fashion, footwear and accessories, personal care and home segments, catering to all aspects of a quality lifestyle.”
As of June 2014, SSI is said to have 111,585 square meters of prime retail space and 655 retail locations in 68 malls nationwide for its 103 specialty brands.
Among the popular brands under its portfolio are Prada, Gucci, Burberry, Salvatore Ferragamo, Michael Kors, Kate Spade, Hermes, Charriol, Lacoste, Polo Ralph Lauren, Marlboro Classics, Armani Exchange, DKNY, CK Underwear, CK Jeans, Polo Jeans, United Colors of Benetton, GAP, Old Navy, Zara, Stradivarius, Bershka, Aeropostale, Samsonite, Kenneth Cole, Nine West, Payless Shoe Source, Beauty Bar, Marks & Spencer, Pottery Barn and TWG.
To ride on the potentials of the middle class whose appetite for quality lifestyle has likewise been growing, SSI opened recently its first Wellworth Department Store under a joint venture deal with Ayala Land Inc.
SSI is also in joint venture with Ayala Land and Japan FamilyMart and Itochu Corp. of Japan to operate the FamilyMart convenience store—another strategy to ride on changing consumer trends.
Bottom line spin
The retail business has undergone major shifts over the past several years, particularly in the introduction of specialized merchandise and service that also led to the move off the mall that now characterizes the present retail game.
Notably, while shoppers still continue to look for selection, quality and reasonable prices when shopping, they now also place more value on the time and personal attention given to them by stores. And with increasing income and appetite for quality lifestyle products, shoppers have shown willingness to shift their spending to stores that can provide this experience.
SSI appears to have seen and captured these developments and is now poised to bring it to a higher level of productivity and performance. On this aspect, SSI is certainly a “Buy.” It has distinguished itself from other retail gamers through its years of operation.
A closer understanding, however, of its cash conversion cycle is important. This matter is critical to its continued profitability. The cash cycle tells us how quickly a firm sells its products (goods or inventory), how fast it collects payments from customers for the goods sold (receivables), and how long it can hold on to the goods themselves before it has to pay suppliers (payables).
From what has been shown, SSI has a relatively good inventory turnover. It is able to sell its products as fast as possible. Collection of payments from customers is as well not a problem.
Added to these, SSI has a positive employee culture that can certainly make it become a leader in brand management of specialty retail concepts. Store personnel are always visible and ready to assist. Importantly, too, they are noticeably trained with their products. Customers usually walk away satisfied—despite the price tags attached to them.
At the offer price of P7.50 a piece, which is about 20.2 times of 2015 estimated earnings per share, along with other considerations not given in the foregoing commentary, I would say that SSI is a “Buy.”
The writer is a licensed stockbroker of Eagle Equities, Inc.. You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com
