TRG Pakistan lose Momentum in Share Price

News Desk

Alfalah CLSA had given an Rs270 target price to TRG Pakistan last year. It gained momentum from Rs 35 share price to Rs 180 in fifteen months. It had crashed now to Rs 69. This is a big shock for investors. The main reason is its subsidiary company Afiniti in US shelvedIPS. 

Maple Capital had bought shares of TRG Pakistan over Rs 2 billion and experts were expecting a rise in its share price to Rs 200. Now, investors are uncertain about the TRG share price forecast.

TRG share price History

The share price of TRG Pakistan stood at Rs 24 in 2019 that jumped up to Rs 104 in January 2020.It went up further to Rs 142 in February 2021. The share price of TRG Pakistan continued going up and touched Rs 180 mark due to promises of buyback shares and offering afiniti IPO.

Earlier, TRG Pakistan, a company that claimed to have a record of positive returns, was set to gain momentum on the stock market after its subsidiary IBEX Limited has achieved substantial growth in its revenue.

The share price of TRG Pakistan has witnessed a higher growth sometimes back.

Now, the recent surprising financial results of its subsidiary IBEX Limited (“Ibex”), will fuel more growth in its share price.

IBEX has been taking a lead in providing business processes, providing technology solutions.

It has announced highlights of financial results for the fourth quarter and fiscal year that ended June 30, 2021.

Bob Dechant, CEO of ibex expressed price what it accomplished in the fiscal year 2021.

CEO said that the company completed a record year with revenues amounting to $443.7 million that is around 10 % organic growth, and adjusted EBITDA of $66.2 million, accounting for a 20 percent increase.

Ibex achieved higher growth despite facing an incredible challenge COVID environment.

Bob pointed out they shifted to the digital-first marketplace to fully leverage differentiated capabilities, resulting in attracting new customers that represent $230 million now, or 52%, of current revenues.

The company has also retained 100% of our top 20 clients for the fiscal year.

The company CEO said that the balance sheet transformation was almost complete with a growing cash balance.

The fiscal Year 2021 Financial Highlights

Revenue

• Revenue is up 9.5% to $443.7 million, against $405.1 million in the prior year.

Net Income / (loss)

Its Net income was recorded at $2.8 million, as against net income of $7.8 million in the prior year.

Net income margin was down to 0.6%, against 1.9% in the prior year.

Non-GAAP adjusted net income also witnessed an increase to $23.6 million, against $17.0 million in the prior year.

• Non-GAAP adjusted net income margin has also witnessed an increase up to 5.3%, which stood at 4.2% in the prior year.

What is TRG Pakistan?

TRG Pakistan is a firmly Pakistani firm with its inception in December 2002, listed on the Karachi Stock Exchange in July 2003.

Earlier, it had informed Pakistan Stock Exchange on July 30, 2020, its indirect portfolio company, Ibex Ltd, a call center company with global operations, has started a listing process on NASDAQ.

The company had informed the Pakistan stock exchange in a notice that the valuation ranged $20 to $22 per share which implies a prorated stake for TRG Pakistan of Rs20 billion.

Who owns TRG Pakistan?

TRG, a short for The Resources Group, has been a brainchild of Zia Chisti.

Chishti is a Pakistani-American, born to an American father and Pakistani mother.

He grew up in Pakistan. However, Chisti studied and worked in the US.

TRG Pakistan is a venture capital company, specializing in making acquisitions and investments in the business process outsourcing (BPO) sector.

What Does TRG Pakistan Do?

It has been investing typically in around one or two investments in a year. The company invests, especially in technology, IT-enabled services, and medical insurance sectors.

TRG Pakistan Share Price

The share price of TRG Pakistan had witnessed a sharp increase during the past few months. It had made a sudden jump from Rs 30 per share to Rs 166 per share right now.

TRG Pakistan Share Price Forecast

Alfalah CLSA has given an Rs270 target price to TRG Pakistan following the hypergrowth of Afiniti and a harbinger of liquidity eTelequote is the owner and operator of easymedicare.com.

Liquidity events to unlock further value Hypergrowth of Afiniti demands higher valuation TRG’s monetization of its assets led the company to deliver one of the highest returns in listed space in the past year. We believe that there is still enormous room for further growth that can be unlocked through another liquidity event.

TRG’s Value

After consulting CLSA’s tech analyst, we have valued Afiniti using EV/Sales multiple, an internationally preferred valuation metric for high-growth companies that have low or negative EBITDA.

TRG’s value ranges from PKR270/sh to PKR451/sh, as per different valuation methodologies, Affalah CLSA said in a research report.

At our price target of PKR270/sh, TRG offers an upside potential of 63% from the last close, it further said adding that thus we assign a BUY call to TRG. General Overview of Company TRG Pakistan is one of a kind listed holding company operating out of Pakistan.

The company holds 45.3% share capital of TRG International (based in Bermuda). TRG International in turn has a significant stake in Afiniti and Ibex. Thus TRG Pakistan acts as an indirect holding company of Afiniti and Ibex.

Read More: TRG considers shares’ buyback, Afiniti IPO

eTelequote was also part of TRG International till June-2021, however, with the recent closing of the deal to sell eTelequote to Primerica Inc, TRG Pakistan’s stake has been reduced to just 2 entities.

Afiniti operates in an enterprise software vertical and connects customers with the ideal agents based on an array of matching traits.

Ibex is a business processing outsourcing company with offerings in the domain of digital customer acquisitions, omnichannel service and support, surveys and feedback analytics, and end-to-end interaction intelligence.

eTelequote

A harbinger of liquidity eTelequote is the owner and operator of easymedicare.com. It is an independent digital insurance marketplace providing individuals the ability to purchase Medicare insurance online.

The company researches available plan options from multiple insurance carriers, helping people choose a plan that best suits their needs. TRG International’s stake until June-21 was 70.25% of the total share capital of eTelequote.

Primerica acquired the entire shareholding of TRG International in eTelequote and a further 9.75% stake from eTelequote management at an enterprise value of USD600mn.

This translates into USD455mn equity value due to the estimated USD145mn net debt at the closing of the deal.

Primerica will purchase the remaining 20% stake over a four-year period. The purchase agreement also included further potential earnout of USD50mn Primerica will pay to sellers over two years contingent upon eTelequote achieving forecasted EBITDA targets in 2022 and 2023.

With TRGIL’s previous 70.25% stake in eTelequote, it will get USD318mn gross receipts now and can further earn up to USD35mn till 2023. Currently TRG International has USD57mn worth of debt on its books. So, after paying off this debt, TRGIL will have excess liquidity of USD261mn. If this entire sum is paid as dividends then TRG Pakistan being a 45.3% shareholder of TRG International will receive USD117.3mn as dividends, which translates into a per-share impact of PKR34 for TRG Pakistan.

However, in a recent conference call, management stated that they intend to keep a portion of that excess liquidity as a rainy day reserve for investee companies. So, after keeping that reserve, they will pay back to investors in one form or another. Management stated 3 possible options for routing funds to investors of TRG Pakistan.

Paying cash dividends to TRG Pakistan investors

TRG International uses these proceeds to buy back shares of TRG Pakistan. In this case, if rainy day reserves are not considered then using options 1 and 2 can lead to a maximum consideration of up to USD117.3mn as a proportionate share of TRG Pakistan in TRG International.

However, for option 3, if the management of TRG International deems TRG Pakistan as attractively valued then it can spend even a larger portion of USD259mn proceeds to buy back TRG Pakistan shares. Management is contemplating these options under the lens of tax efficiency and will opt for one where the benefit for investors is higher. Note that in the last asset monetization of Ibex, it did not pay a major portion of funds back to investors of TRG Pakistan.

Read More: TRGIL to sell its full stake in E-telequote

The management in its recent call stated that they are in the phase of returning capital to the investors and don’t plan to make any further investments. So, the cash position of TRG Pakistan is likely to improve in the coming days.