Friday, July 14, 2017

Just Another Netlink Trust IPO Analysis

This is one of the biggest IPO in recent years and by now there are many articles written about it. You can refer to these articles instead (if you have not), they definitely write and analyze better than me:

1. One cannot make a decision on IPO without Mr. IPO's chili ratings - Netlink NBN Trust (Update)
4. SG Budget Babe - IPO Analysis: NetLink Trust

So the question is will KPO go for the IPO? Finally took some time to look at the prospectus and highlight sheet. I will be ignoring those forecast/projected numbers for 2018 and 2019 as they will always paint a bright and happy future. Who will forecast their business to lose money?? lol.

We know that the offer price is at $0.81 with total net assets of $3,070,815,000. Assuming the over-allocation option is exercised in full (3,021,456,001 units), the NAV will be $1.02. If there is no over-allocation, there will be 2,898,000,001 units instead and the NAV will be $1.06. That is about 20% discount, what a good deal?!


Unfortunately, if you were to look at its balance sheets, you can see $1,009,569,000 of intangible assets. To put it in simple terms, that is $1 billion of nothing. lol. KPO is very practical and does not like intangible assets. Digging deeper into the prospectus, one will be able to find the breakdown for the intangible assets which consists of 2 items - Licence and Goodwill.


Such a high goodwill?! Let me provide you a proper definition taken from Investopedia - Goodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill.

Do read these 3 articles for more information:
Investopedia - Intangible Asset
- Investopedia - Goodwill
- Investopedia - Goodwill vs Other Intangible Assets: What's the Difference?


Personally, I like to be more conservative in calculating the NAV. Hence, removing the goodwill from the total net asset will result in the NAV dropping significantly to $0.79 or $0.75 if the over-allocation option is exercised. If they were to offer at the higher end of the indicative range ($0.80 to $0.93), I would not have participated in the IPO. It seems that the biggest winner is probably Singtel and the banks (bookrunners/underwriters).

With the most recent Yventures IPO, the offer price was at $0.22 and it closed at $0.255. So far 2017 continues to be a great year for IPO and my analysis still holds true! Do take a look if you have not - Will IPO Make Money - IPO Analysis for the Last 3 Years


Paying a little premium for a business with increasing positive operating cash flow year on year, operating in a monopoly market with a dividend yield of around 5.73% seems reasonable. KPO shall apply small small for 10,000 units and hold for 23 years.

Huat ah!

2 comments:

  1. Hi KPO,

    The way you phrase " To put it in simple terms, that is $1 billion of nothing" is really lol. XD

    ReplyDelete
    Replies
    1. Hi Unintelligent Nerd,

      Just trying to be funny at the same time, providing readers a different perspective :) Thanks for dropping by again!

      Delete