Thu | Feb 20, 2020

Brokers reveal similar price targets for Mailpac shares

Published:Friday | November 22, 2019 | 12:23 AMSteven Jackson - Senior Business Reporter
Mailpac offices at Old Hope Road, Kingston.

Brokers expect the Mailpac stock to increase by around 40 per cent in price in the short run, once the shares list on the market.

The initial public offering for Mailpac Group Limited, a courier company, comes to market today, Friday, at $1 per share, which serves to entice price-sensitive investors. A successful IPO would give the company a market capitalisation of $2.5 billion or nearly 100 times its book value of $27.4 million, according to the prospectus.

Victoria Mutual Wealth Management, GK Capital and NCB Capital Markets, the latter being the lead broker for the IPO, say the offer is value for money, mainly due to the loads of cash the courier generates on an annual basis.

VM Wealth valued the stock at $1.39 per share and on that basis recommended Mailpac “as a buy”. Although VM believes that Mailpac, as a company operating in an increasingly competitive industry, will need to innovate unique products to suit its customers’ needs and convenience, the broker also noted in its analysis that e-commerce penetration remains low, which provides fertile ground for the company’s continued growth.

Part of that growth involves new services, but also the potential to acquire competitors.

Mailpac, in its prospectus, projects to grow its annual pre-tax profit by a third by year end, which would equate to $282 million in profit on $1.1 billion in revenue.

GK Capital says the profit projections suggests a trailing earnings per share of $0.13, assuming the new total number of issued shares with the IPO. This translates into a price-to-earnings ratio, or P/E, of 8.87 times in a junior market that, on average, trades at 26 times earnings, GK said in its analysis.

“The stock is likely to trade at $2.21 by the end of the 2020 financial year,” GK Capital projected, but it too sees the short-term price being about $1.39 on the low end.

“Our analysis of the company’s financial statements, forecasts, use of proceeds, and the general investment review suggests that the stock value could appreciate within the range of 39 per cent to 121 per cent over the short-to-medium term,” said GK Capital, adding that the projected dividend yield at some 2.4 per cent increases its attractiveness. It, too, recommended the stock as a buy at $1.

NCB Capital estimates that the stock has an upside of 41.4 per cent relative to the IPO price. Its research arm said it utilised three methods to evaluate the stock, including forecasts to map the cash it generates over time, the heavy dividends it pays out, and the price relative to trading peers on the market.

“We selected the price from the dividend discount method at $1.41 as our fair value estimate because of the high target payout ratio and the fact that shareholders who take up this offer will have a non-controlling interest,” said NCB. It added that the discounted cash flow method produced a $1.90 valuation, while the P/E method resulted in a valuation of $3.35.

Mailpac wants to wants to raise $495 million by selling a 20 per cent stake on its way to list on the junior arm of the Jamaica Stock Exchange. The company is led by Executive Chairman Khary Robinson and CEO Mark Gonzales.