SECURA GROUP: 6 months on, stock is swimming below IPO price

Photo: CompanyWhat I like about the Company Very stable business in cheque printing. Many banks need to pre-qualify vendors and once qualified, there is some stickiness with staying with the same vendor The volatile and uncertainty (such as potential terrorist attacks) has led to the increase of physical security guard. Having said that, my recollection is that in Singapore, only Certis Cisco can provide armed guards. Other firms such as Secura can only provide unarmed security guards Reputable and savy shareholders list but that doesn't mean they are going to give retail investors a free lunch. In fact, retail investors are probably the lunch. :-P Innovative structure with detachable warrants that expire in 3 years and exercisable at 35c. It seemed to tell investors that they should "hold" for at least 3 years Allowing investors to participate in this offering even though it is a small tranche Cyber Security is an interesting space and i believe the Company wants to use the high valuation for M&A opportunities Audited by a big 4 Ernst and Young.

 

♦ One-chilli rating

"It's a very mixed feeling for me. My gut feel is that the share will debut above its IPO Price but don't overstay your welcome. It's a one chilli rating for me as this is not a clear compelling buy and the towkays definitely didn't leave any meat on the table." -- Mr IPO

Some of my concerns

• While cheque printing is a stable business, it is also a sunset business. People still writing cheques will belong to "the older generation". Technology has since changed the way people pay for services. One good example will be i used to write cheque to pay my credit card bills but have since moved on to online platform such as Internet banking or www.axs.com.sg
• Uncertain and volatile markets sentiments may affect the debut
• Very rich valuation. There are many beaten down stocks that are currently worth a second look vis-a-vis this Company debuting at high valuation
• While the detachable warrants is novel, it creates another layer of complication to retail investors, who may not fully appreciate how warrants work
• Misleading prospectus where they list the PER of FY2014 at 8.9x, knowing jolly well that $5m of the net profit in FY2014 was non-recurring and using a pre invitation share capital as the denominator! 
• The Company took out the cash prior to the IPO through dividends amounting to around $12.8m over the last 3 years. If the prospects is so good, why didn't they keep the cash in the Company to grow the business?
• Huge placement tranche of more than 100m shares may mean selling pressure 

Stock price	18.1 cents
52-week range	15 - 25.5 cents
PE (ttm)	20.57
Market cap	S$72.4 million
Shares outstanding	400 million
Dividend yield (ttm)	1.66%
Source: Bloomberg

The reputable list of investors should provide some initial interest and support but the valuation, in my view, is really too rich and there isn't enough growth prospect to warrant such a high valuation.  My guess is that the Company will take advantage of the high valuation as currency for future acquisitions since all the "towkays" inside are deal makers but don't make yourselves their lunches. They got in a much lower valuation. 

 

It's a very mixed feeling for me. My gut feel is that the share will debut above its IPO Price but don't overstay your welcome. It's a one chilli rating for me as this is not a clear compelling buy and the towkays definitely didn't leave any meat on the table.

Mr. IPO is a Chartered Financial Analyst and a Chartered Accountant. He currently works as an investment professional.

Secura Group's recent Powerpoint materials are here.