KARACHI: Brokerage houses have urged their clients to subscribe to the upcoming initial public offer (IPO) of Pakistan Aluminium Beverage Cans (PABC), the country’s only can-maker catering to the bottlers of all major carbonated drinks, including PepsiCo and Coca-Cola, in Pakistan and Afghanistan.
The current sponsors of PABC are selling a 26 per cent shareholding to institutional and ordinary investors for up to Rs4.6 billion. Book building will take place on June 22 and 23, which will be followed by public subscription on June 29 and 30.
According to AKD Securities, investors should subscribe to the IPO until the strike price hits the ceiling of Rs49 per share.
“The management estimates PABC’s earnings to register a growth of 43.1 per cent over the next five years which, we believe, to be achievable considering the pent-up demand of cans in the local market — easing of restrictions and potential agreements with delivery service to replace PET soft drinks with cans — and the company extending exports markets,” it said in a recent note to clients.
The IPO will have a floor price of Rs35 per share. But based on the interest from investors during the book building process, the strike price can rise by 40 per cent (Rs49 a share).
After adjusting for tax credit available to the company because it’s located in a special economic zone, the average earnings in calendar years 2022-24 are projected at Rs6.30 per share, it said. “Based on relative valuation metrics, the company’s valuation stands at Rs80.30 per share. Hence, we advise investors to subscribe till (the price ceiling of) Rs49 per share. Even at a cap price of Rs49, the price/ earnings-to-growth (PEG) ratio for 2022-24 comes in at 0.5 times,” it said, referring to a measure that analysts use to determine a stock’s value by factoring in the company’s expected income growth.
In a research report issued by Dawood Equities, the brokerage house told its clients to subscribe to the issue up to the strike price of Rs49 per share. “Our target price for March 2022 is Rs75 per share, giving an upside of 53 per cent to the strike price.”
As for the drivers of high valuation, Dawood Equities listed sustained growth in the soft drinks market, rising footprint in the export market and a shift from PET packaging to can packaging as a reason for the positive outlook.
Ismail Iqbal Securities also issued a subscribe call while urging its clients to buy shares up to the strike price of Rs45 apiece, which offers a 20 per cent upside to the brokerage house’s estimated intrinsic value of Rs54 per share.
“Our investment thesis revolves around the company’s growth potential in both local and exports markets, robust pricing power as major raw material costs are pass-through, low capital expenditure requirements for further expansion and the can-maker being the sole beneficiary of the rising ESG focus of beverage companies and investors,” it noted.
It highlighted that in view of rising environmental concerns in the developed countries, demand for aluminium cans is expected to increase drastically with the spillover effect in the emerging markets. It also pointed out the high potential for growth in can penetration in Pakistan. “We estimate that the annual increase of every 50 basis points in can penetration can push Pakistan’s existing demand for 275 million cans to 603 million cans in 2025 with a cumulative annualised growth rate of 10 percent.”
Copyright Business Recorder, 2021
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