Distribution company, Derrimon Trading is coming to the equities market with an additional public offer (APO) of nearly one and a half billion shares with the option to upsize by offering an additional 301.3 million new ordinary shares.

The APO opens on January 6, 2021, and will close on January 26. This is the second company in less than a week to announce an APO; the other company being alternative investment company, Sygnus Credit Investments, which is aiming to raise upwards of $3.3 billion from its APO, which opens this Friday, December 18 and closes one week later on December 23.

Derrimon’s APO has been priced as $2.20 for existing shareholders and staff members and $2.40 for key investors. The company is clients of Barita Investments, which is the lead broker and arranger of the APO and the general public. It is the intention of Derrimon to apply to the Jamaica Stock Exchange (JSE) for admission of the new ordinary shares to trade on the Junior Market.

The application for admission is dependent on the company’s ability to raise at least $3.5 billion from the APO. If this invitation is successful as well as its application for admission for trading of the new ordinary shares to the JSE, Derrimon’s subscribed participating voting capital will exceed the maximum of J$500 million set by the Junior Market Rules.

Derrimon granted waiver to remain listed on Junior Market

The company has written to the JSE indicating its intention to seek its consent to remain listed on the Junior Market whilst paying the fees applicable to a Main Market company. The JSE has indicated by a letter dated December 2, 2020 that it has no objection to the company’s request.

Stock price movement

For the six month period commencing May 19, 2020 and ending November 19, 2020 the Derrimon stock price has increased by 23.76% moving from $2.02 to $2.50. The company also paid a dividend on October 27, 2020 of $0.012 per share which represents an increase of approximately 20.10% from the prior year’s dividend.

In his forward attached to the prospectus, which was made public today, Derrimon’s Chairman and Chief Executive Officer, Derrick Cotterell pointed out that “although this invitation is being made to the general public and not by way of a rights issue, we have made the deliberate decision to reserve a significant portion of the new ordinary shares being offered to our existing shareholders at a discounted price.”

As at the date of this prospectus, the board of Derrimon owns more than 60% of the issued share capital of the company. If fully subscribed that percentage will decrease, which Cotterell argued is not a signal of lack of confidence.

Use of APO proceeds

He stated that the dilution of the directors’ value of share equity in the company will arise because of the use of proceeds, particularly to fund growth by acquisition and also to repay debt. The Derrimon boss contends that if fully subscribed this would lead to an increase in the economic value of Derrimon’s shares.

Derrimon has grown through the use of debt. A significant amount of the proceeds will be used to reduce existing indebtedness and therefore reorganizing the company’s capital structure so that a higher percentage of its cash-flows will translate into benefits for shareholders.

Opportunities for growth

Derrimon through its major distribution company, Sampars with its on-line platform has been a significant player in facilitating online purchases of groceries. The COVID-19 pandemic has accelerated the adoption of digitisation by local consumers.

As such Derrimon expects that a significant percentage of consumers are likely to turn to digital mediums to purchase their essentials and therefore the company is well prepared to take advantage of this secular growth. In addition to organic growth, Derrimon has a long history of successfully acquiring and integrating other businesses.

Sampars Cash ‘N’ Carry was acquired by Derrimon in 2009 with the most recent acquisition being Woodcats International Limited, which was completed in 2018. The COVID-19 pandemic has caused prices of many assets to contract.

Derrimon is presently evaluating two potential acquisitions in the United States. If these potential acquisitions are consummated, Derrimon is likely to realise significant synergies from the vertical integration of those businesses with its existing business lines.

Although there is no guarantee that these two transactions will in fact be completed, we are reasonably confident of completing a transaction in the same industry within the next six months.