Karachi, November 27, 2013 (PPI-OT): Automation services provider Avanceon Ltd intends to issue 25.16mn shares at a floor price of PkR14/share to raise funds for business development projects in the UAE, where 75% of these shares will be offered via book building.
According to AKD Securities with a history of 24 years and presence in Pakistan, UAE and North America, Avanceon has built a strong clientele spanning a host of industries globally. After successive losses, the company witnessed a phenomenal financial turnaround in CY12 as a result of sizable revenue growth from UAE operations, de-leveraging and cost optimization ala the International Execution (IX) model. Going forward, management expects a 5-year revenue and earnings CAGR of 21% and 13%, respectively, driven primarily by prospective infrastructure projects in the UAE. At a floor price of PkR14/share, Avanceon implies attractive valuations – CY13F P/E of 2.9x, P/B of 0.8x and D/Y of 14%.
The transaction: Avanceon Ltd intends to issue 25.16mn ordinary shares, 75% of which will be offered via Book Building (Nov 27’13 – Nov 28 ’13) at a floor price of PkR14/share while the remaining will be offered to the general public at the strike price determined through book building. Funds raised through the transaction will primarily be utilized for business development projects in the UAE.
The company: With a market footprint in Pakistan, UAE and North America, Avanceon has been a prominent provider of automation, control systems integration, energy management solutions and support services for the last two decades. Core services of the company spans across a wide range of industries including oil and gas, FMCGs, power and cement (local as well as international) while After Market Services (AMS) allow for stable recurring income. Notably, Avanceon’s International Execution (IX) model offers a cost competitive approach for cross-border projects, whereby the company leverages local resources while enjoying international pricing.
Financial turnaround: Avanceon posted consolidated NPAT of PkR763mn (EPS: PkR7.6) in CY12 after successive losses, where de-leveraging and cost optimization viz the IX model along with a 67%YoY growth in revenue to PkR2.1bn and gains from a one-off loan settlement led to the phenomenal turnaround. Going forward, management estimates revenue to grow at a 5-year CAGR of 21% with increased focus on the UAE market. In this regard, major prospective projects include infrastructure ventures in Qatar and Dubai while contract backlogs and gains from PkR devaluation (majority of the projects are billed in US$) are expected to further augment revenues. Moreover a de-leveraged balance sheet and tax concessions (CY13F-CY18 average projected effective tax rate: 8%) results in a 5-year earnings CAGR of 13% for the company, according to management estimates. In 1HCY13, Avanceon posted NPAT of PkR210mn (EPS: PkR2.09) while management expects CY13 earnings at PkR474mn (EPS: PkR4.71), which implies a CY13F P/E of 2.9x at a floor price of PkR14/share.