both Cambodian citizens – a 20 per cent allotment has been provisioned
– and non-Cambodian citizens. Permitting foreign investor
participation should dramatically improve the prospects for the IPO as
this will be the only publicly traded equity exposure in Cambodia.
Only 13 million shares will be floated, and a maximum of 10.4 million
shares will be available to foreign investors. At the highest end of
the offering price, it will take a miniscule US$16.5 million to fully
subscribe to the maximum foreign allotment. There is no mention of a
"greenshoe option", a provision allowing the underwriter to sell more
shares than originally set by the issuer, if demand warrants.
The fact of the matter is that PPWSA has a lot going for it. The
company's in the business of water supply, an everyday necessity that
we cannot live without. It is a monopoly supplier covering Phnom
Penh's eight districts and also supplies northern Takmao town.
Licences to new suppliers are granted by the government, who will
retain 85 per cent majority ownership post-IPO, in areas where there
is no existing water supplier. Quite simply, as a monopoly, PPWSA is
the only supplier of an irreplaceable service without any competition
in its market.
Despite being a state-owned enterprise, PPWSA has emerged as an
internationally recognised leader in its industry. The trophy case
includes the "Water for All" award from the Asian Development Bank in
2004 and "Stockholm Industry Award Water Award" in 2010. To quote the
International Award Jury for the latter award, "a self-sufficient
company, operating without subsidies from the state, PPWSA provides
24-hour service and 90 per cent coverage to a city of 1.3 million and
fully recovers its costs as it continues to develop both its
infrastructure and management".
The financials look pretty solid. Revenues were $26 million in 2010,
up 10.4 per cent from 2009, which saw an increase of 4 per cent from
2008. In 2011 revenues were expected to have increased close to 8.7
per cent.
Over the last two years revenue growth averaged 9.9 per cent, not at
all bad for a water utility. Net income for 2010 was $7.5 million, a
13.2 per cent increase from 2009. Net income will likely be flat in
2011. Earnings before interest, taxes, depreciation and amortisation
increased 9 per cent in 2010, and will likely increase 3 per cent in
2011. In the five-year period from 2005-2010, production capacity
increased 28 per cent.
The proceeds of the offering will be used to reduce debt, which
strengthens the balance sheet, and fund expansion, which is good for
future revenue growth and earnings. The price-to-earnings ratio is
reasonable at 11.5 to 18. However, the offering price is likely to be
four to 5.9 times net asset per share, which is quite expensive. The
company is expected to pay a dividend, providing a cash-flow to
investors.
It is not unusual for an underwriter to price an IPO in such a way
that it is well positioned for a successful opening day, which makes
investors happy, and results in good press. Yelp, an online consumer
review site, recently debuted on the New York Stock Exchange with a
targeted range of $12-$14, opened at $15, and traded up 64 per cent
its first day. PPWSA may not have a similar run, but odds are it will
do quite well.
