Tomorrow, Caribbean Cream Limited will seek to raise $75 million by listing 20 per cent of the company on the Jamaica Junior Stock exchange by way of an Initial public offer (IPO) at $1 per share.
In the seven years they have been in operation CCL has captured 50 per cent of the standard ice cream market, and is poised to dominate that section of the local ice cream sector in the coming years. CCL has been able to produce a product of superior quality to the other standard local ice cream brands, while keeping price at the same level. As such, consumers have responded overwhelmingly, by rewarding the company with increased sales every year since inception. For a company to start in 2006, and by 2013 capture 50 per cent of their market segment, is testimony to the sound management, strength of distribution network, and visionary leadership.
CCL intends to use the proceeds of the IPO to expand its plant (including additional warehouse space and a larger and more efficient blast freezer), improve processes, and working capital for ongoing strategic initiatives. This will result in lower costs and higher profits for the company over the short to medium term.
The numbers
Ice Cream is big business. In their latest financials (for financial year ended 2012), turnover was over $430million, that is close to half a billion dollars, and they are on course to beat that for 2013.
My fair value estimate is $1.19, which means that coming to market at $1, is essentially giving the market a 19 per cent discount. This IPO is the one of the more attractively priced IPO in recent issues. Additionally, the offer values the company at just over six times earnings at $375 million. A single digit multiple valuation is an attractive opportunity in my book. The compounded annual growth rate for CCL has been over 50 per cent for the last five years. That is an impressive growth rate in a Jamaican economy coming under increased recessionary pressures during that time. A 7.2 per cent net profit margin is reasonable in my book for a growing company such as CCL.
Who is behind this company? The company is run by president and CEO Christopher Clarke, his mother and chairman Carol Clarke Webster, and his brother and director Matthew Clarke. Carol Clarke Webster by the way is the same dynamic individual behind the success of Success of Scoops Unlimited, makers of Devon House Ice Cream. While the companies are separate, it is evident that these individuals know the ice cream business expertly from an operational standpoint. Additionally they also know how to market and sell ice cream successfully, with a deep understanding of what it takes to be successful holistically, regarding distribution, financing, operations, marketing, quality of product, and knowledge of the Jamaican palate for ice cream.
What became very clear over the process of two investor briefings, was that there is significant room for growth available for CCL, growth that this IPO will help them achieve. All vendors I spoke to had one main complaint of not getting enough supply of "Kremi" ice cream, based on customer demand. This IPO will enable Kremi to have the capacity to have meet market demand, particularly through the acquisition of a new blast freezer that will see faster processing of the product.
Additionally, CCL has recently signed contracts to supply the Sandals and Jewel Hotel Chains with ice cream, which will add to revenue growth. We should also be seeing an increased presence of "Kremi" in supermarkets island wide, as this is an area that they are only now beginning to tap into. Additionally, the future tax breaks that come from successfully listing on the Junior Market will also be a significant benefit to the company's cash flows, and by virtue of that, also benefit investors.
I recommend this stock as a buy. The IPO opens on April 25, 2013.
Stocks and Securities Limited is the lead broker for Caribbean Cream Limited's IPO. Kevin Jones is an assistant manager of the wealth division at Stocks and Securities Limited and can be contacted via kjones@sslinvest.com
The first thing that may come to mind for some is, who is Caribbean Cream Limited (CCL)? CCL is a manufacturer and distributor of ice cream and ice cream products under their "Kremi" brand.
A loaded truck carrying Caribbean Cream’s ice cream product heads out to make a delivery.
A five-gallon box fills with Kremi ice cream.
    A loaded truck carrying Caribbean Cream’s ice cream product heads out to make a delivery. #slideshowtoggler, #slideshowtoggler a, #slideshowtoggler img {filter:none !important;zoom:normal !important}  1/2  |
CCL intends to use the proceeds of the IPO to expand its plant (including additional warehouse space and a larger and more efficient blast freezer), improve processes, and working capital for ongoing strategic initiatives. This will result in lower costs and higher profits for the company over the short to medium term.
The numbers
Ice Cream is big business. In their latest financials (for financial year ended 2012), turnover was over $430million, that is close to half a billion dollars, and they are on course to beat that for 2013.
My fair value estimate is $1.19, which means that coming to market at $1, is essentially giving the market a 19 per cent discount. This IPO is the one of the more attractively priced IPO in recent issues. Additionally, the offer values the company at just over six times earnings at $375 million. A single digit multiple valuation is an attractive opportunity in my book. The compounded annual growth rate for CCL has been over 50 per cent for the last five years. That is an impressive growth rate in a Jamaican economy coming under increased recessionary pressures during that time. A 7.2 per cent net profit margin is reasonable in my book for a growing company such as CCL.
Who is behind this company? The company is run by president and CEO Christopher Clarke, his mother and chairman Carol Clarke Webster, and his brother and director Matthew Clarke. Carol Clarke Webster by the way is the same dynamic individual behind the success of Success of Scoops Unlimited, makers of Devon House Ice Cream. While the companies are separate, it is evident that these individuals know the ice cream business expertly from an operational standpoint. Additionally they also know how to market and sell ice cream successfully, with a deep understanding of what it takes to be successful holistically, regarding distribution, financing, operations, marketing, quality of product, and knowledge of the Jamaican palate for ice cream.
What became very clear over the process of two investor briefings, was that there is significant room for growth available for CCL, growth that this IPO will help them achieve. All vendors I spoke to had one main complaint of not getting enough supply of "Kremi" ice cream, based on customer demand. This IPO will enable Kremi to have the capacity to have meet market demand, particularly through the acquisition of a new blast freezer that will see faster processing of the product.
Additionally, CCL has recently signed contracts to supply the Sandals and Jewel Hotel Chains with ice cream, which will add to revenue growth. We should also be seeing an increased presence of "Kremi" in supermarkets island wide, as this is an area that they are only now beginning to tap into. Additionally, the future tax breaks that come from successfully listing on the Junior Market will also be a significant benefit to the company's cash flows, and by virtue of that, also benefit investors.
I recommend this stock as a buy. The IPO opens on April 25, 2013.
Stocks and Securities Limited is the lead broker for Caribbean Cream Limited's IPO. Kevin Jones is an assistant manager of the wealth division at Stocks and Securities Limited and can be contacted via kjones@sslinvest.com