Leading brokers recommend Rs. 4 b Softlogic IPO

The country’s biggest-ever IPO in six years worth Rs. 4 billion by Softlogic Holdings Ltd. opens officially today, with all leading brokers recommending it as a medium to long term ‘buy.’

Despite the size and being the biggest since Dialog Telekom’s offer in 2005, majority view is that it will be closed today by 4:30 p.m. after being comfortably oversubscribed since it was up for subscription for investing public since 1 June.  

Softlogic IPO involves 139 million shares at Rs. 29 each.

Several leading brokers who had researched the IPO and made their findings available to the Daily FT had recommended it as a buy. Among them are John Keells Stock Brokers, Bartleet Mallory Stockbrokers, Acuity Stockbrokers, TKS Holdings and IIFL Ceylon.

TKS Securities summed up its report saying “Based on earnings based valuation the share generates good value at the issue price of Rs. 29.00 being valued at 14.3X FY12E earnings and just 9.4X times FY13E earnings. Further the main attraction of the stock is the faster five year EPS CAGR of circa 175%. Given the dull market, the IPO would be an opportune window to capitalise on short term gains and to benefit in the medium-long term with the aggressive expansion driven organic growth of the company. Therefore strong upside for the share could be expected, thus we recommend SUBSCRIBE.”

“We expect the group four-year forward revenue CAGR to be 78.8% while the Profit Attributable for Shareholders to grow by a steeper 181%. The counter trades at an attractive 21.7x PER (Trailing Twelve Month) and a 13.1x forward PER on FY 2012 earnings. We recommend SUBSCRIBE,” Bartleet Mallory Stockbrokers said in its report.

Acuity Stockbrokers said Sotlogic’s FY2011 EPS based on the profit attributable to Equity holders of the Group is Rs. 1.34 resulting in a PE of 21.7x. The post IPO net asset value of the share is estimated at Rs. 9.85 with a Price to Book Value on the IPO price of Rs. 29.00m of 2.9x.

With the consolidation and growth strategy of the Health Care sector and the growth expected from the Retail segment of the Group coupled with the Finance cost savings expected from retiring high cost debt by utilising IPO proceeds, the earnings of the Group should warrant more attractive earnings multiples which makes the counter a Medium to Long Term investment.

“At an issue price of Rs. 29 the counter trades at a P/Ex of 12.9x FY12E and 8.6x FY13E earnings, which is a discount to peers despite offering superior near term earnings growth rates and exhibiting higher returns on equity. We recommend SUBSCRIBE,” opined JKB.

“We believe the investor appetite for fresh IPOs continues to be fairly strong especially since this is the largest offer since the Dialog IPO in six years. Therefore, strong upside for the share could be expected in the short term however higher revenue stream and earnings potential could moderate valuations further hence making it a long term buy. SUBSCRIBE,” pointed out IIFL Securities in its report.

Positioning itself as a platinum conglomerate with a value story Softlogic Holdings Ltd. described the IPO as an opportunity not to be missed.

“Ours is a value story. As we have proven and delivered in a short span, we are determined to a continuous process of further strategic value creation,” Softlogic Chairman and Managing Director Ashok Pathirage told the media cum investor launch on 1 June.

Since its launch in 1991, the group has largely progressed — expanding into a number of sectors including ICT, Retail, Healthcare, Leisure, Automobile and Financial Services Sectors as well.