ANDRE WORRELL
Along with an opinion that said the amended offer made for Trinidad Cement Limited shares by Cemex was "not fair, from a financial point of view," Ernst and Young Services Limited (EYSL) provided a valuation report on the estimated value of the local cement company and its shares.
According to that report, which provides an estimate of the fair market value of TCL's ordinary shares as at December 31, the fair value of the shares ranges between $5.60 and $6.18.
EYSL used income and market approaches in their valuation analysis. The income approach yielded a per share value of $5.13, while the market approach yielded a per share value of $6.64.
"Overall, on the basis of our review and subject to the assumptions and limitations noted herein, in our opinion the fair market value of 100 per cent of TCL's issued and outstanding ordinary shares, as at 31 December, 2016, is in the range of $2.09 billion to $2.32 billion, or $5.60 to $6.18 per ordinary share," the EYSL report said.
Asked to comment on the decision of TCL directors to reject the amended Cemex offer, JMMB Investments financial analyst Racine Mckenzie said: "Directors' advice to shareholders to reject the offer is a reflection of the company's intrinsic value range of $5.60 to $6.18. However, considering the foreign exchange limitations, the revised offer providing US$0.76 per share has certainly grabbed investors' attention."
Commenting on the valuation of the shares as laid out in the EYSL report, McKenzie said: "It is reasonable and I think there is further upside to the valuation price range. Think of it this way, any acquirer would try to purchase an entity at a discount to its intrinsic value."
She said in large measure TCL's performance will be affected by economic activity in T&T.
"TCL's performance over the last years has been sporadic. Looking at nine months in 2016, we can see a drop in revenues, down 12 per cent and profit after tax down significantly (84.6 per cent)," she said.
"The majority of TCL's revenue is derived from local cement which has been on the decline. At the end of 2016, local cement sales contracted 20 per cent year-on-year, the lowest in the past six years due to the slowdown in government spending.
"Based on the Public Sector Investment Programme (PSIP) for 2017, which has a total budget of $5 billion compared to $7 billion in 2016, construction activity for 2017 is anticipated to remain subdued. As such, TCL is expected to grapple with suppressed profitability for 2017."
"Trading activity spiked following the original offer. TCL has been seen climbing approximately 61 per cent from $3.38 to the current $5.44 per share as at January 20, 2017.
"Based on current demand demonstrated, TCL's price can trade higher until the January 24 offer deadline."