Changes in investor preferences in capital markets may be surprisingly odd at times, as is being witnessed by the newly listed Wateen Telecom Limited.
The company announced its IPO in the early days of April 2010, with an overwhelming market response; not only were their 110 million shares readily subscribed to, but the green shoe option for 90 million shares was also utilized.
Yet, public sentiments have taken a 180 degree turn in a span of less than 3 months, as is obvious from the declining share price, which stands at roughly Rs5.6/share today as against the par value of Rs 10.
The dip in share prices is quite contradictory since Wateen hasn deviated much from the financial projections made in their IPO prospectus, and recent announcements made are also a breath of fresh air for the shareholders.
Fears floating among investors include a susceptible bottom line, and the highly leveraged position of the company. What is puzzling is that both these factors had been clearly laid out at the time the company was introducing its shares publicly, when the investors had zealously oversubscribed to the shares.
Wateen being a growth stock, substantial returns are expected once the teething period is over. The company had clearly explained that profits for FY10 will be on the downside due to factors such as pre launch costs of some projects and increase in financial costs due to central banks tight monetary stance.
But it also points at a robust comeback from the declining profits in FY11 when profits are expected to soar to Rs 19 billion.
Its premature to already make judgments about the companys financial position as the financial statements for the next quarter are yet to be disclosed.
BR Research has found through sources in Wateen that a positive variance of 10-15 percent on the bottom line has already been brought about despite projections of a loss, a commendable feat indeed.
The high points of the EOGM notice also bring some good news for the investors. The announcement of the companys plans of not raising funds through issuing shares worth Rs 1.5 billion means that no further dilution of shares will be brought about.
On the contrary, Wateen will be raising additional funds worth $20 million (roughly Rs 1.7 billion) through a loan from the sponsors. That, this is supposed to be a soft, mark-up free loan makes the proposition a positive one for shareholders.
At the same time, a part of the IPO proceeds valuing Rs 819 million will be used to make payments for the companys financial obligations, indicating an encouraging move from the company as far as debt restructuring is concerned.
The market has overplayed on a few negatives of Wateen, which had in fact been disclosed in the prospectus. Since the company is in its growth phase, the initial few months are bound to be testing after which a comeback is expected.
Already the Wateen network is only a few kilometres from the Pak-Afghan border, and good news is expected in a few weeks time. The company has also been granted a subsidy by Universal Service Funds (USF) amounting to nearly Rs 1.8 billion for Optical Fibre Cable (OFC) expansion of 2,672-km in Balochistan and Sindh.
The outlook should be a favourable one, particularly over the long run and a positive recovery is expected to be just round the corner.
Comments
Comments are closed.