Procurri Corporation (Procurri), a company providing data centre equipment and information technology (IT) lifecycle services, disclosed on 07 January 2019 that a potential party is still conducting due diligence on the Company’s financials and operations, and is still considering a possible transaction, including the various forms of implementing the potential transactions.

However, the management did not say how close the potential party is in concluding the due diligence checks and has advised shareholders and potential investors to exercise caution when dealing with the Company’s shares. The 07 January announcement was not the first. In fact, the Company had previously disclosed this potential party and its developments since 08 October 2018.

Background 

Procurri is a spin-off listed entity from its parent DeClout. DeClout, specialising in providing information and communications technology (ICT) solutions and services in Singapore, the Americas, Europe, and internationally, is a listed on the Catalist board. Incidentally, DeClout received a voluntary conditional takeover cash offer of $0.13 per share on 07 January from a wholly owned subsidiary of Tokyo-listed Kyowa Exeo Corporation.

Before the announcement of DeClout’s voluntary cash offer by Kyowa Exeo Corporation, disclosed on 04 January, that it had unloaded a 17.2 percent stake in Procurri to two independent third parties at $0.32 each through married deals, cutting its stake in Procurri to 29.6 percent from 46.8 percent and raising net proceeds of $15.2 million. The sale price represented a premium of 14.4 per cent of the volume-weighted average price of Procurri shares of $0.2797 traded on the previous day on 03 January.

Timing Of Deals

Investors must have been wondering what were the reasons behind the cascade of deals involving both the parent Declout, and its listed subsidiary Procurri. Procurri has disclosed outright that the events involving DeClou’s voluntary conditional cash takeover has nothing to do with the present evaluation of the potential transaction on itself by an independent third party. Both events, it stressed, are totally unrelated.

Financial Standing Of Procurri

Procurri Corporation            
Summary of Financials (All Dollar Amounts are in S$’000)        
Income Statemenet 2013 2014 2015 2016 2017 9M17 9M18
Revenue 28,400 76,901 122,814 135,750 181,822 133,154 168,163
Cost of Revenue 19,077 52,533 81,192 89,713 122,854 90,772 107,896
Gross Profit 9,323 24,368 41,622 46,037 58,968 42,432 60,267
Gross Profit Margins (%) 32.8% 31.7% 33.9% 33.9% 32.4% 31.9% 35.8%
Profit Before Tax 1,656 4,008 9,997 7,614 (2,276) (1,008) 7,873
Net Profit after Tax 1,953 3,266 8,772 5,139 (2,749) (1,493) 3,667
Net Profit Margins (%) 6.9% 4.2% 7.1% 3.8% -1.5% -1.1% 2.2%

Source: Company Announcements

We noted that Procurri’s net profit margins have been falling since 2015 to negative 1.1 percent in FY17. As of 9M18, Procurri’s net profit margin stood at 2.2 percent.

However, gross margins continued to maintain quite consistently at around 30 to 36 percent range since 2013.

BalanceSheet (S$’000) 2015 2016 2017 9M18
Cash and Bank Balances 4,932 30,006 18,459 20,678
Inventories 11,168 15,641 21,424 21,291
Accounts Receivable 35,374 39,410 48,347 55,348
Current Assets 54,102 89,224 96,141 109,132
Total Assets 81,367 117,081 140,571 148,244
Total Loans and Borrowings 18,516 18,087 21,414 16,947
Accounts Payable 24,992 24,670 29,154 35,147
Current Liabilities 41,894 42,762 66,310 72,276
Total Liabilities 47,043 49,999 76,729 80,486
Total Equity 34,324 67,082 63,842 67,758

 

Cash Flow (S$’000) 2013 2014 2015 2016 2017 9M18
Cash Flows from Operating Activities (1,210) 1,683 4,936 (624) 13,381 6,774

 

Financial Ratios 2013 2014 2015 2016 2017 9M18
Debt-To-Equity Ratios 0.39 0.54 0.54 0.27 0.34 0.25
Current Ratio 1.52 1.23 1.29 2.09 1.45 1.51
Accounts Receivable Turnover N/A N/A 3.5 3.4 3.8 3.0
Inventories Turnover N/A N/A 7.3 5.7 5.7 5.1
Accounts Payable Turnover N/A N/A 3.2 3.6 4.2 3.1
Days Sales Oustanding N/A N/A 103.7 104.5 95.7 88.9
Days Inventory Holding N/A N/A 49.5 62.8 62.8 53.3
Days Payables Outstanding N/A N/A 110.8 99.0 85.4 88.0
Cash Conversion Cycle N/A N/A 42.4 68.3 73.1 54.2

Source: Company Announcements

We noted that despite the falling net profit margins, the Company did manage to achieve positive net operating cash flows, and has maintained a low to consistent debt-to-equity ratio ranges of 0.25 to 0.34 (Note: We calculate the debt balances on the numerator part of the equation using total loans and borrowings, and it might differ the figures shown in the FY 2017 Annual Report).

The Company’s total loans and borrowings balances have also been steadily declining and the total loans and borrowings balance last stood on 30 September 2018 at $16.9 million.

Comparison Of Enterprise Value Multiples

Calculation of Procurri’s Enterprise Value (EV)  
Market Capitalisation (As of January 11, 2019) (S$’000) 83,170
Total Loans and Borrowings (As of Sept 30, 2018) (S$’000) 16,947
Total Market Cap + Loans 100,117
Less: Cash and Cash Equivalents (S$’000) (Sept 30 2018) 20,678
Enterprise Value (S$’000) 79,439
EV/Revenue 0.47

 

Peer Comparisons EV/Revenue Multiples EV/EBITDA Multiples
Procurri Corporation Limited 0.47 5.06
CEI Limited 0.55 7.52
Excelpoint Technology Limited 0.17 12.78
Karin Technology Limited 0.30 14.74
mDR Limited -0.02 -1.24
Memtech International Limited 0.50 5.19
Multi-Chem Limited 0.10 3.13
PNE Industries Limited 0.38 4.38
Serial System Limited 0.17 9.07
Telechoice International Limited 0.17 8.34
Median 0.24 6.36

Source: Company Announcements, SGX Stockfacts, Yahoo! Finance

Based on our calculated EV-to-Revenue (EVR) and EV-to-EBITDA (EVEBITDA) measures of 0.47 times and five times respectively for Procurri, we noted that both measures are not quite far off from the median estimates of its peer group.

Risks

While official details of the potential transactions are yet to be disclosed, there could be a possibility that a deal is not being consummated, or existing shareholders might block the deal due to a lack of a substantial premium.

There are a whole host of potential setbacks that might cause the deal to be at risk of not being done. This is one of the reasons why management has emphasized to all existing shareholders and potential investors to exercise caution when dealing with the Company’s shares. Investors should therefore bear that in mind.

Related Article:

Dr. Chan: I Am Bullish For These Reasons

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