S&R acquisition seen to boost Puregold profit

The public float of Puregold Price Club will be diluted with the acquisition of upscale retailer S&R Membership Shopping, but the consolidation will result in higher earnings for the company, top officials of Puregold said.

Puregold, which submitted a comprehensive disclosure on its P16.5-billion takeover of affiliate S&R, said its public ownership would go down to 22.92 percent from 31.71 percent after the consolidation.

The dilution will be brought about by Puregold’s issuance of new shares to pay the family of businessman Lucio Co, owner of S&R operator Kareila Management. Prior to this deal, Puregold was aiming for a net profit of P1.94 billion this year equivalent to an earnings per share (EPS) of P0.97.

Puregold president Leonardo Dayao, in an interview, said Puregold’s EPS could even increase by 4-7 percent with the infusion of S&R’s business.

For 2012, S&R is expected to generate P1 billion in profit, which means that Puregold will pay about 16.5 times projected earnings when it takes over the business.

Apart from queries on the valuation of S&R, Puregold investors were also concerned on why this consolidation was being pursued only now that the latter has become a public company.

Puregold investor relations chief Jimmy Perez said the Co family did not fold in S&R into Puregold right away because the upscale unit was still struggling in 2010, which was when Puregold started to prepare for a stock debut.

“The family was quite surprised that in the last 12 to 18 months, the business thrived and that gave them the confidence that it is very profitable,” Perez said.

In recent conference calls, Perez said investors were also surprised that S&R was raking in 18.3 percent in gross profit and 9.9 percent net profit margin or much higher than the margins enjoyed by other warehouse clubs in the region.