AllDay to raise up to P6 billion in November IPO

The Villar Family followed through on what it telegraphed in June by announcing that it had applied to the SEC to IPO its grocery store chain, AllDay Marts Inc, through the sale of up to 7,535,700,000 common shares (inclusive of a 10% over-allotment option) at a maximum price of P0.80 per share, to raise a total of [6 billion. The vast majority of the proceeds of the AllDay [ALLDY 0.80] IPO will be used to pay off the P4.1 billion in outstanding high-interest debt that the family incurred in expanding the store network.

The remaining 32% of the proceeds will be put toward ALLDY’s “working capital” to fund further store expansion. ALLDY believes that this allocation of proceeds is in the shareholder’s best interest, as it will decrease ALLDY’s financing costs by P264.4 million per year. ALLDY is the subsidiary of Manny Villar’s holdco, AllValue Holdings Corp, which currently owns 99% of the 16 billion issued common shares. AllValue Holdings Corp is selling up to 685 million shares of ALLDY through the over-allotment option, but the remaining 90% of the deal is primary.

That means ALLDY is selling 47% of itself at a market cap of P12.74 billion. The PSE will release its decision on the ALLDY IPO on September 29 and the SEC is expected to release its decision on October 13, with the IPO tentatively scheduled for November 3, 2021.

MB BOTTOM-LINE

The majority of the cash the Villars will raise in this IPO will go directly to paying down the debt racked up in building what ALLDY already has; only 32 centavos of every peso raised will go to building out new locations. ALLDY reports that between 2018 and 2020, its sales compound annual growth rate (CAGR) was 61.4% and its net income CAGR was 94.9%. Those are explosive numbers.

Those are rocketship numbers. Granted, ALLDY’s net income in 2020 was P220 million (about P40 million less than the amount saved by paying down ALLDY’s debt), but if we’re supposed to believe that ALLDY’s sales and profit growth rates are sustainable, then why in the world should investors be excited about sinking almost 70% of the proceeds into fixing up the bottom-line when the topline growth is absolutely ridiculous? If the Villar Family’s concept is truly this profitable, and the market is truly this receptive so as to cause net income to quadruple in three years, then why not throw every available peso at growing the store network and riding that rocket?

Say ALLDY doesn’t retire its debt and its financing cost is not reduced by P260 million: sure, that looks kind of bad for the first year when the potential cost savings of debt retirement is larger than its 2020 net income, but if we even extrapolate the growth rates provided by ALLDY for one more year, we’d expect its net income to rise to P428m by the end of 2020. ALLDY had 24 stores at the end of 2020, and the prospectus claims to plan for 45 stores by the end of 2021, with 100 stores slated by the end of 2025. Is that a sufficient expansion plan to maintain the sales/profit growth rates that the Villar Family is using to advertise the sale of ALLDY’s IPO stock?

The ALLDY model relies on renting storage space and not purchasing land, but it isn’t 100% clear yet whether the Villar Family would restrict its available market by its existing footprint of leasable in-house space owned by the Villar Family’s various other companies. Why does the family seem so keen on the low-hanging fruit of debt repayment, while at the same time trying to convince us that ALLDY is a YOLO rocket of growth and profit? ALLDY investors would obviously love to see its growth unconstrained by the Villar Family’s desire to pay its rent, but in that sense, the interests of the investor and the family may not be fully aligned. I’ll be sure to update with a deeper reading of the prospectus!

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