Harry's Holdings

[Musicwhiz]

I personally think survival is insufficient for a prudent investor. He would ask for a decent rate of return on his deployed capital, or else why risk it in equities cum businesses? Might as well throw it into Govt bonds with a guaranteed 2% return instead of facing the risk of erosion of capital.

[lonewolf]

HARRY'S HOLDINGS LTD.- Admission of 95,000,000 shares to the Official List of SGX-Catalist

Trading in the shares will commence on "Ready" basis with effect from 9.00 a.m., Wednesday, 26 January 2011.

Placement of 24,000,000 New Shares (“Placement Shares”) at $0.22 for each New Share, payable in full on application (the “Placement”)

Taking into consideration the approximately 95 existing public hareholders, the Company will be in compliance with Rule 406(1)© of the Singapore Exchange Securities Trading Limited (the “SGX-ST”) Listing Manual Section B: Rules of Catalist (“Catalist Rules”) before the commencement of trading.

Wow! Din realise the no of existing shareholders in the company was so few. I suppose I can go and brag that I am one of the 95.

[dydx]

Apart from raising a small amount of new capital - nett $3.3m (after paying/accounting for the related listing expenses amounting to some $1.98m) - the placement exercise also serves to raise Harry's total shareholder base to at least 200 - a requirement for a listing on Catalist.

It is worth noting that a 'big fish' has taken up 10.0m shares in the share placement of a total 24.0m new shares.

[VestedInterest]

Suspect that this counter will open flat (plus minus 2 cents). Thereafter it will be fairly illiquid, But that's OK as this should be for the long run. There are a few potential drivers for the business- Proprietary beer, pub business, food business, hotel business, child development business. In fact am not sure why it is being compared to St James at all. The business times writer who wrote about Harry's last week appeared to have not read the AR or prospectus!

[iisterry]

Is anyone vested after all?

Share is down 27% @ $0.16 from IPO price of $0.22. Current market cap of approximately 15 million. Trading at roughly 18.6X PE based on my calculations.

Some observations below.

95,000,000 shares outstanding (24,000,000 new, 71,000,000 pre IPO).

EPS @ $0.0211 (FY2009) & $0.001 (FY2010 annualized + diluted) & $0.0086 (FY2010 annualized + diluted + placement cost excluded) *Pg 21-22

The much higher apparent EPS from FY2009 is inclusive of $367,578 from liquidation of a former subsidiary as well as $362,013 from Jobs Credit Scheme. If this 2 items were excluded, the EPS for FY2009 would be @ $0.0134 instead of $0.0211. *Pg E-22

NTA of $0.1038 (diluted) *Pg 23

Nett cash of $0.0248 ($5,476,425 - $3,116,344) *Pg F13-14

Weighted effective interest rates of approximately 5-7% *Pg F15

As a percentage of revenue, inventories purchase accounts for 28% while rental & staff costs account for 23% along with other operating expenses at 10%. Nett profit margin is roughly in the range of 1-3%.

CEO has an incentive bonus of 3.5% nett profit after tax for the first 2 million and 4.5% thereafter. *Pg 132

COO has an incentive bonus of 1.5% nett profit after tax. *Pg 133

The Placement exercise has an overhead of $0.375 for every $1 raised, excluding the advantages & disadvantages of being listed.

Addendum: Just as a remark, the CEO benefits more from the service agreement & its corresponding incentive bonus along with his monthly remuneration ($40,000 excluding perks) than from returns generated from his 40+% equity stake (roughly 1% dividend yield I suspect). Will this be a case of mis-aligned interest with minority shareholders?

[ssian]

Good point taken on the remuneration outline for their packages.
It seems as though the package of $40grand/mth as basic salary is somewhat very high if you were to ask me, considering the revenue and PBT they are (earning).

[Musicwhiz]

Business Times - 15 Feb 2011

Harry's share price down a third since listing

By LINETTE LIM

SHAREHOLDERS of Catalist-listed Harry's may hit the bottle soon, if the decline in the bar chain's share price is not reversed.

Opening day trade on Jan 26 saw the counter close at 19.5 cents, below its IPO offer price of 22 cents. Since then, its share price has hovered between 14.5 and 17 cents. It closed 1.5 cents down at 14.5 cents yesterday, for a total loss of 34 per cent since listing.

Harry's first announced on Jan 12 that it will list on the SGX Catalist with an all-placement IPO.

Offering 24 million new shares at 22 cents each, it raised $5.28 million in gross proceeds from 141 placees.

Of the proceeds, $1.5 million will be used to expand its brand presence in Singapore and to fund expansion to overseas markets, Harry's has said.

About $250,000 will be used to establish distribution channels for Harry's beer in local supermarkets, while the remaining proceeds will fund working capital requirements.

Harry's, which was quoted on the Phillip Securities OTC (over-the-counter) market in January 2007, had some 95 existing public shareholders prior to the IPO.

It boasts a chain of 32 bars and other F&B businesses such restaurants, catering and a boutique hotel.

It has no plans to diversify into non-F&B business, although it owns Gymboree Play Programs, a provider of early childhood development programmes. Harry's chief executive Mohan Mulani has said that Gymboree Play Programs is his wife's business venture, which subsequently got incorporated into Harry's.

In 2009, Harry's achieved revenues of $37.3 million, and a profit of $2 million.

Mr Mulani intends to expand overseas via a franchise model. He told BT in an earlier interview that he hopes to have the 'first overseas Harry's outlet in 2012'.

[VestedInterest]

After having relooked this counter, it may be best to avoid it. Vested since OTC days- nothing to be gained from going in at the OTC stage. No interest in shareholder value at all. They could have at least given some bonus shares to placate the faithful shareholders since the OTC days. That is why the old shareholders have bailed out at the first opportunity. The financial report out today looks disastrous. Looks like share price will be heading towards 10 cents, unless the directors and CEO start buying up.

[dydx]

If Harry's businesses are heading for disaster, then why is the company paying a Final dividend of $0.0022/share? And if Mr Mulani doesn't care much about the older shareholders (since the OTC days), then why did the company spend all the time and effort to go on the Catalist board?

Instead of just looking at the P&L and get worried about the small profit, it pays to look into the details of the just released FY10 full-year results announcement.....
http://info.sgx.com/webcoranncatth.nsf/V...5003AE27E/$file/Harrys_2010ResultsAnnouncement.pdf?openelement

If we add back the IPO expenses ($846k) and the start-up expenses ($1.0m) of the hospitality business (essentially "The Club" hotel on Ann Siang Hill which commenced business in May10), Harry's established chain of bars and restaurants-cum-bars, catering, and the franchising and playschool businesses would have delivered a PBT of $1.89m (vs. $2.484m in FY09), and a positive pretax FCF (by also adding back depreciation of $2.913m) before capex of $4.81m, in FY10. And it is important and relevant to note that this PBT of $1.89m is after absorbing the start-up expenses of 7 new Harry’s bars and 4 new Harry’s restaurants-cum-bars opened in FY10.

I think it is still too early to tell or see the true profitability of Harry's enlarged businesses. By using Q4-FY10's revenue of $11.334m as a basis, Harry's group revenue is now running at in excess of $45m a year and still growing.

Based on the 95m outstanding issued shares and the last done share price of $0.145, Harry's market cap. now stands at only $13.775m. If Mr Market allows, many (including me) wouldn't mind buying the entire company at the current market valuation just to have the benefit of the $45m a year revenue cash flow.

Another relevant point to note: While Mr Mulani is an driven entrepreneur, he is certainly not an idiot!

[VestedInterest]

Definitely not an idiot. But a shrewd businessman will know how to take care of his supporters. Have been keeping an eye on some of their outlets. I could be wrong but notice that their outlets at Pasir Panajang, Harbourfront, Rail Mall, Fusionopolis, T2 terminal, Millenia Walk not doing too well. CHIJMES and Suntec ones are so so. The good ones are at Far East, Boat Quay, Orchard, Clarke Quay (Rupee?) and Esplanade. Their Mirchi chain of restaurants aren't doing that great either. Their margins are razor thin and I fear that Mr Mulani may have over-extended himself. This is one of the few coy that report a loss on their maiden FR on Catalist. Off my memory, the last one I recall tht reported a loss was Starhub which listed on the mainboard.
But the jury is out on the longer term prospects- HPL beer, The Club, foray into China (highly risky), etc
I am vested.