IPO Analysis: Century Pacific Food Inc. (CNPF)

James Ryan Jonas

Should you take part in the initial public offering (IPO) of Century Pacific Food Inc. (CNPF)?

The second IPO of the year (after Double Dragon Properties IPO) is that of CNPF, the company behind popular canned meat brands such as Century Tuna, Argentina Corned Beef, 555 sardines, and Swift, among others, plus other consumer brands such as Birch Tree milk, Angel condensada, and Kaffe de Oro.

It will issue up to 229.65 million shares, effectively opening 10.3% of the company to the public (10.3% public float).

The shares are priced at P13.75 each, which means Century Pacific will raise as much as P3.16 billion from the IPO.

The stock will be listed and will start trading in the Philippine Stock Exchange (PSE) on May 6.

Analyzing an IPO

There is no tried and tested formula to determine if an IPO will be a success, but investors may consider several factors to ultimately arrive at a decision whether to buy or say goodbye to an IPO offer.

Some of these key considerations are:

  1. Overall growth prospects of the company and the industry;
  2. Usage of the proceeds from the IPO; and
  3. Offer price or valuation of the company’s stock

Growth Prospects

To invest in a stock is to bet on a firm’s future cashflows. Thus, an investor would like to see above-average growth in the company and the industry it belongs.

Local stock trading resource PinoyInvestor recently issued on April 30 an updated version of the Special Report on the Century Pacific IPO which contains a comprehensive analysis of CNPF by three (3) of PinoyInvestor’s partner brokers.

As regards Century Pacific’s growth outlook, the Special Report cites an opinion from local broker DA Market Securities about the company’s sources of growth opportunities, such as:

  1. 72% consumption-based Gross Domestic Product (GDP) in the Philippines;
  2. The Philippines’ canned/preserved food industry is the largest market in Southeast Asia;
  3. CNPF is a market leader in its industry and has diversified category and product portfolio;
  4. Poised to grow Tuna Exports by supplying processed tuna to international companies;
  5. Century Pacific was able to grow through a string of successful acquisitions in the past;
  6. Strategically located production facilities that could help decrease costs and extensive distribution network allowing it to expand its reach.

Of course, there are also risks outlined in the Special Report which you may access here.

Usage of IPO Proceeds

To determine if an IPO offer would produce value to investors, proceeds from the IPO should be analyzed how they will be spent. From the more than P3.16 billion that CNPF will raise, around half will be used to pay for its liabilities. One-fourth will be allocated to capital expenditures (completion of a tin can manufacturing factory and expansion of its dairy and mix factory), while the rest will be used for working capital and/or potential acquisitions.

As regards CNPF’s debt obligations, stockbroker Unicapital Securities explains in PinoyInvestor’s Special Report:

Century Pacific’s debt is expected to decrease from PHP 2.717 billion to PHP 1.427 billion after repayment of short-term debt of PHP 1.29 billion (representing 42.30% of IPO proceeds).

Current Debt-to-Equity (D/E) ratio stands at 1.87x and the IPO will bring down the D/E ratio to around 1.40x.

How this impacts the recommendation of PinoyInvestor’s three partner brokers as regards buying CNPF’s stock is explained in the Special Report.


Stock Valuation

Whether a stock is undervalued or overvalued may also be determined by comparing it with its industry peers. In PinoyInvestor’s Special Report, there is a detailed comparison of CNPF versus its peers in the Consumer sector, such as Universal Robina Corp. (URC), and peers in the Food sector, such as Alliance Select Foods (FOOD), San Miguel Purefoods (PF), Del Monte Pacific Ltd. (DMPL) and D&L Industries (DNL), among others.

Excerpt from the Special Report:

In the consumer sector, we compare CNPF with another listed company URC. Although URC’s product portfolio differs from CNPF’s range of products, URC employs the same business-to-consumer (B2C) marketing model. Both companies work on developing brand recall in consumers to capture a significant portion of the market. URC ended 2013 with PHP 81.0 billion in sales and PHP 10.1 billion in net income, compared to CNPF’s PHP 19.0 billion revenues and PHP 743.9 million in net profit.

The Special Report makes a conclusion whether the stock is cheap or expensive by comparing Century Pacific’s Price-Earnings Ratio (PER) with that of its industry peers.


Century Pacific IPO: Buy or Goodbye?

No one can accurately say whether the CNPF IPO is worth investing in, but it helps to get guidance from expert local stockbrokers whose job is to evaluate these offers.

Through PinoyInvestor, it is possible to access a complete and detailed analysis of Century Pacific’s IPO and get to see the recommendation of three of the Philippines’ best brokers (Angping & Associate Securities, DA Market Securities and Unicapital Securities) as regards investing in this IPO. The Special Report was released on Wednesday, April 30.

Registration in PinoyInvestor is free and members receive weekly Stock Reports with top picks, stock recommendations, and Target Prices, plus access to the PinoyInvestor Academy, a collection of useful investor education resources. Click here if you want to signup in PinoyInvestor for free.

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.