The Junior Market Prepares for Another IPO

Eppley Limited, a company that provides loans, leases and other forms of commercial credit to corporate and professional customers, will be seeking to raise a total of $82.56Mn by inviting members of the public to subscribe for 218,999 shares of the company. The offer price is $377.

Of note, only 73,000 of these units (9.17% of the shareholdings) are available to the general public as 121Mn will be reserved for Stony Hill Capital Limited (‘SHCL’). SHCL made a loan to the company and has elected to convert a part of the loan into shares at the invitation price. Another 24,333 will be reserved for directors and staff members. The Board intends to use the proceeds to fund credit facilities and pay the expenses of the invitation.

Eppley has seen a decline in earnings since 2009, with net profit moving from $49.47Mn to $15.06Mn in 2012. This has resulted from a steady decline in net interest income and higher operating expenses. Using 2012’s net profit, Eppley’s trailing P/E is 14.15X (or 19.93X considering the additional shares to be issued). The price to book ratio is 3X. Given the small free float (9.17%) the stock is very illiquid and at these multiples, may not be attractive to value seeking investors. Further, in light of the decline in earnings over the years, the company may find it difficult to maintain the 50% dividend policy outlined in the prospectus.