ISM Communications aka Udenna Corporation

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Backdoor listing creates a formidable conglomerate

From trash to gold?

Share swap

The share price of ISM Communications soon to be renamed to Udenna Corporation rose 193% to as high as 3.87 PHP/share in the past 12 months handily beating any giant publicly listed conglomerates.

In its recent history, the Recto-led ISM has failed to generate any profits but its recent share swap transaction with Uy-led Udenna has given life to the not so familiar, formerly known Itogon-Suyoc Mines, holding company. ISM owns 32% of Acentic GmbH and 37.1% of Philippine Bank of Communications.

An antecedent to the recent proposal happened back in August of this year when Dennis Uy, through his Dennison Holdings company, acquired 45% of ISM at a 47.8% discount for 1.28 billion Php.

In a recent public disclosure, the two companies intend to conduct a 72.2 billion PHP worth of share swap that will result to a 75 billion worth Udenna Corporation from the now 2.5 billion worth ISM Communications.

The share swap will be implemented once the Securities and Exchange Commission confirms the valuation report and approves the increase in authorized stock.

Udenna

The soon publicly-listed Udenna Corporation will still be headed by ISM’s current 55-year-old Chairman and CEO Eric Recto, while Udenna’s Chairman and President Dennis Uy will be the Vice Chairman. Nonetheless, Dennis Uy will be the largest shareholder by then and will be owning 65.01% of the newly formed company.

Udenna, founded by Dennis Uy in 2002, owns 51.4% of Phoenix Petroleum, 70% of Chelsea Logistics and Philippine H20 Ventures, 100% of Udenna Development Corporation, Udenna Infrastructure Corporation, and Le Penseur Inc.

Udenna also has assets including a $300-million casino project in Cebu, called Lapu-Lapu Leisure Mactan, a joint venture with Robinsons Land Corp., Udenna Tower, and the Calaca industrial seaport.

Acquisitions

Uy-led companies have been on an acquisition spree in recent years having taken majority stakes in Conti’s (70%), the Philippine Family Mart (100%), a minority stake in 2GO via KGL Investment Coöperatief UA (100%) resulting in a stake in KGLI-NM Holdings (32%), Philippine H20 Ventures (100%), and recently a 14.8% investment in an oil and gas exploration, PXP Energy.

Numbers

As per public disclosure, Udenna’s financial figures grew significantly in 2017 from 2016. The company recorded a 62% rise in revenue to 51 billion Php with profits soaring as high as 431% to 4.1 billion Php.

Included in this tremendous growth was the company’s debt intake of about 57 billion Php for the year giving it a total debt of 85.8 billion Php. Udenna’s significant growth in goodwill supports its highly acquisitive activities in that year albeit representing 40% of its assets.

Udenna’s book value also rose by an impressive 220% to 30.5 billion Php. Nonetheless, the company had a leveraged balance sheet of 2.8x debt-equity ratio as of 2017.

Valuation

If Udenna could grow its book value at a very similar and bullish pace and at half the same pace as last year, the company should trade somewhere between 0.7x to 1.2x its estimated 2018 book value at a possible 75 billion valuation in the near future. This valuation will be considered cheap considering a probably a better fitting comparison to San Miguel Corporation at 1.37x book.

If anything else, its disclosure suggested that the company will end up having 5.86% public float assumption post-backdoor listing and could probably result in more share issuance, therefore, share dilution.

It surely is interesting to see how Udenna develops into the country newest publicly-listed conglomerate.

Disclosure: No shares in any of the companies mentioned.

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