Thursday, August 5, 2010

Puregold Considers Public Listing

IN THE NEWS from Business Mirror Online Space

Image from TJ's Daily

Puregold Price Club Inc. is reported to be “seriously” considering an initial public offering (IPO) to finance its planned expansion in Luzon. And by “seriously,” Puregold honchos mean the plan could be implemented "at most within two years."

The retail firm would need a significant amount additional capital as it plans to expand aggressively in Luzon, through both organic means and acquisitions. Last week, Puregold opened its 50th branch in Cubao, Quezon City; it plans to add another 10 to 15 branches this year which could cost the company anywhere from 2 billion to 3 billion pesos.

The first time I read the report, my immediate reaction was, "Ang kapal naman ng mukha. The nerve of these people." I'm not an expert in the retail industry, but I do know that margins are paper-thin and bargaining power is exclusively (and often brutally) wielded by the top players, namely SM, Robinson's, and Rustan's. So why would investors want a piece of a middling player in this highly price-competitive industry?

Typically, investors would expect only companies that have shown sustainable profitability or good potential for growth to go through an IPO. I posit that Puregold has, as of yet, not been able to exhibit either of these two characteristics, so an IPO in the near future would be ill-timed and ultimately unsuccessful. Growth for growth's sake is worthless: those additional 10 to 15 stores would have to generate significantly positive future cash flows to be able to create additional value for shareholders. And with SM, Robinson's, and Rustan's dominating Mega Manila and more experienced players like Walter Mart already deeply entrenched in rural areas, what's the chance of that happening for Puregold?

In fact, this "article" comes across as just some sort of press release from the retailer to test investor sentiment in the midst of an over-performing local stock market. In other words, it just looks like a half-assed, paid attempt to know if investors would be gullible enough to bite into the offer.

But that's just me. What do you guys think?
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