Posted by: i-banker | October 4, 2013

Robinsons Retail IPO

Disclaimer: Views do not reflect those of the blogger’s employer. Some portions of the analysis are not final until the issuer and PSE discloses the final offer price.

First things first… it’s the first time that I’ll be writing about a development in the capital markets after more than a year. In a way, I’ve minimized the level of mastery in analyzing the different developments and offerings in the debt and equity capital markets. For those who did not know, I spent the last year doing business development and strategic planning duties for a company engaged in retail and real estate operations. It kinda feels exciting writing about my two cents of a primary offering in the capital markets.

To get my feet on the ground, I thought my first comeback analysis should be done on an issuer that belongs to an industry I am familiar with (hoping that all biases can be set aside): Robinson’s Retail IPO. Considering that my recent engagement is in retail, I will try my best to be objective in my analysis and observations. Also, pardon the absence of charts and Bloomberg shots, as I don’t have access to a Bloomberg Terminal.

The Offering Memorandum posted at the PSE disclosed that the maximum offer price of the IPO is at P86.64, with a maximum issue size of PHP40 Billion. However, according to recent press releases, Robinsons Retail IPO will offer approximately USD500 Million or roughly P22 Billion. Nevertheless, it remains as potentially one of the biggest if not the biggest equity listing debut in the PSE.

Given the several scenarios of this IPO, and assuming market charts and external shocks are not taken into consideration, let me try to give my 2 cents based on the following general assumptions:

  • On the first half of 2013, Robinsons Retail posted net income of P1.13 Billion. Let’s assume for simplicity that by the end of the year, they will be able to generate P2 Billion Net Income.
  • Given the drop of market valuations from the start of 2013, let’s assume that the offering will be at P22 Billion but with no changes to the shares to be offered. If inclusive of overallotment options, that would assume an offering price of P46 – computed as (P22 Billion divided by 461,897,500 offer shares

Given the abovementioned assumptions, the 2013 PE that I’m estimating should be around 32x at computed as follows:

  1. PHP46 per share x total of 1.385 billion shares to be listed, or P63,710,000,000
  2. P2 Billion net income or EPS of P1.44 per share

If we base it on the maximum price, then the possible 2013 Price Earnings Ratio  (PE) for Robinsons Retail  should be around 60x, which is already ridiculously pricy. But they already made a pronouncement that they might likely raise just USD500 Million.

The necessary condition for the Robinsons Retail IPO to be cheap relative to Puregold is for it to offer at a price not higher than P46 per share. Based on yesterday’s closing price of P43.75,  Puregold Price Earnings Ratio is around 39.37x, with a 2012 blended sales per sqm of roughly P188,328. It would be interesting to see what will be the blended sales per sqm of Robinsons retail, although I don’t personally expect it to be high even with the contribution of Ministop.

Ground analysis wise, I have the following issues on Robinsons Retail:

  • Except probably for Robinsons Galleria, Robinsons Place Ermita and Robinsons Magnolia, I think that the foot traffic of most Robinsons Department stores are weak, except during the months of June, November and December.
  • In terms of Supermarket and Hypermarket foot traffic observations, I would say it is the least busy compared to Puregold, Shopwise, SM, and Waltermart. In my own site visits and rounds, I have observed that the only ones that have jampacked shoppers are the supermarkets anchored inside the Robinsons Malls. Those that are leased elsewhere are not as busy. But they are definitely busier than the Super8 stores.
  • However, the success of Ministop in getting its market share from 7-Eleven is undeniable.

But my observations can only be quantified once the sales and floor area information is disclosed, which can only be seen in the final prospectus.

But will I buy Robinsons Retail? Definitely not at P86.64. Still undecided at P46 until I finally see the consolidated and per segment sales per sqm and gross and EBITDA margins. But P35 might be worth grabbing this early on.

I’ll have an update of this entry ones I get more information.

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