Thursday, February 22, 2018

Banking on First Citizens shares

This week, we at Bourse will be taking a closer look at the oversubscription of the First Citizens (the Bank) Initial Public Offering (IPO). The 2014 Budget being read today will mark almost two years since the Government first announced its plans to boost the domestic capital market through public offerings which included First Citizens.

As listed in the 2011 Budget, other capital development initiatives included further tranches of the shareholding of Government in PLIPDECO, since the company is already listed on the TTSE. An IPO was also proposed for the Trinidad and Tobago Mortgage Bank, which would represent a merger between Trinidad and Tobago Mortgage Finance Company and the Home Mortgage Bank. To date, the First Citizens IPO is the first proposal to come to fruition.

The IPO was opened on 15 July 2013 and closed on 12 August 2013 with a proposed listing date on or before 16 September 2013. The IPO entailed 48,495,665 shares coming to market which represents 19 per cent of First Citizens total issued share capital.

Based on the subscription details provided, the IPO received 12,435 applications for 151,557,147 ordinary shares, or 3.12 times the 48.5 million shares offered for sale. Total dollar value of subscriptions amounted to $3.329b, $2.3b in excess of the IPO value of $1.1b (48.5 million at an offer price of $22).

The following Q&A seeks to address some of the major queries surrounding the allocation of shares to investors.

How were the shares allocated?

There were six (6) Investor type categories that were ranked in order of priority as follows:

1) Employees of the Issuer

2) Individual investors who are nationals of Trinidad and Tobago

3) Registered pension and other trust funds, credit unions and cooperatives

4) Registered mutual funds including the Trinidad and Tobago Unit Trust Corporation

5) National Insurance Board (NIB)

6) Companies Registered in Trinidad and Tobago

For allotment based on oversubscriptions, any surplus from under-subscribed categories would be re-allocated in order of priority based on the listing above. For example, as seen in Exhibit 1, employees and mutual funds were under-subscribed by 7.2 per cent and 4.3 per cent respectively. This surplus of 11.5 per cent would be reallocated to the category of individual investors, which was oversubscribed, bringing the final allotment to 26.5 per cent.

The National Insurance Board (NIB) would have subscribed for their full allotment. All other categories were heavily oversubscribed, with Companies being the most oversubscribed category (approx. 7 times). Individuals were approximately 6 times oversubscribed.

Individual investors received a guaranteed allocation of the first 1,000 shares (well above the previously stated 50-share minimum) with the balance of the subscription allocated on a prorated basis of 15 per cent. For example, if an application was made for 1,500 shares, the individual would receive a guaranteed 1,000 shares plus 15 per cent of the balance i.e. 15 per cent of 500, or 75, bringing the total allocated to 1,075.

Individual investors purchasing 1,000 shares or fewer will receive their full allotment.

What will be First Citizens

share capital on the TTCI?

In terms of total share capital, First Citizens will represent approximately 5 per cent of the Trinidad and Tobago Composite Index (TTCI) upon listing. Of the 251 million shares in issuance, only 19.3 per cent (48.4m) was offered for sale, representing 1 per cent of the Trinidad and Tobago Composite Index (Exhibit 2).

When will the shares be

listed and how will it trade?

The shares will be listed on or before 16 September 2013 under the ticker FIRST. Based on the oversubscription at the individual and corporate level, there is likely to be heavy demand from investors who did not receive their full allotment. Additional demand will be fuelled by non-nationals of Trinidad and Tobago, who were not allowed to subscribe. Supply is expected to be relatively low. Institutional investors, who hold approximately 66 per cent of the shares, typically buy to hold in their respective portfolios and this may reduce the amount of shares that come to market post-listing.

How does First Citizens

compare to its peers?

Based on the Bankís financial projections for financial year 2013 (FY 2013) EPS is expected to climb to $2.34 from $1.78 for FY 2012 which represents a forward P/E of 9.4 times on the offer price of $22. When compared to the market, as seen in Exhibit 3, this P/E of 9.4 times is considerably lower than the P/E of Republic Bank Limited (RBL) at 15 times and the 5-year average of the market.

First Citizens market to book ratio is 0.67 using a market price of $22. When compared to RBLís market to book of 2.2 and SBTTís market to book of 3.8, First Citizens is undervalued compared to its peers.

What kind of dividends can I expect?

The dividend policy as outlined in the prospectus will be to distribute to ordinary shareholders an annual target dividend payout percentage in the range of 45 per cent to 55 per cent of net profit after tax. It is expected that dividends will be paid twice per year. An interim dividend for the financial year is expected based on the six months financial results to 31 March 2013.

Dividends will be paid to shareholders via direct deposits using the account information provided on the subscription form.

Based on 2013 calculations provided by First Citizens in their Prospectus, EPS is estimated to be $2.34. Using the 45 per cent payout ratio, total dividends for 2013 can be estimated at $1.05 per share.

What does Bourse recommend?

At a price of $22, First Citizens will be trading at a forward P/E of 9.4 times with an expected dividend yield of 4.8 per cent. BOURSE recommends a BUY on this stock.

For more information, investors can call Bourse at 628-9100 or visit us at any one of our offices. Further information is also available on Bourseís website at and Bourse Securities Limited Facebook page.