Q2:

Financial highlights taken from Prospectus on ADAMS Foods Ltd are

given in the grid below.

The IPO consisted of 29.143 million common (ordinary) stocks, representing 25% of the total

post-IPO paid-up capital of the company with a face value of USD 10/share. The first phase of

the IPO pre-IPO/book building portion, consisted of 21.857 million shares or 75% of the

total issue at a floor price of USD 26/share, whereas remaining 7.286 million shares or 25%

were offered to general public. Current market conditions and based on the response

received from institutional and high net worth individual investors resulted in the strike price

of USD 26/share which means share premium of USD 16/share.

Currency: USD in millions CY2013 CY2014 CY2015 CY2016 CY2017

Income Statement

Revenue 6,289 8,160 6,089 5,578 6,134

Cost of Goods Sold -5,441 -7,279 -5,194 -4,939 -5,169

Gross Profit 849 881 895 639 965

EBITDA 539 524 614 345 641

Depreciation and Amortization 93 114 159 150 142

Other Income/(Expense) 2 9 2 18 37

Financial Charges -245 -333 -294 -204 -212

Exchange gain -net - 2 174 1 33 35

Provision for worker's welfare fund 5 - 7 - 5 - 5 - 3

Provision for worker's profit participation fund - - - - -13

Profit/(Loss) before Taxation 196 254 160 38 342

Taxation -65 -77 -62 -34 -73

Profit/(Loss) after Taxation 131 177 98 4 269

Balance Sheet

Non-Current Assets 1,359 2,000 1,928 1,830 2,176

Current Assets 4,485 5,408 5,520 5,077 6,059

Total Assets 5,844 7,408 7,448 6,907 8,235

Equity 1,969 2,099 2,236 2,286 2,571

Surplus on revaluation of fixed assets 269 831 782 599 572

Total Equity 2,237 2,930 3,018 2,885 3,143

Long-Term Debt 180 205 199 145 323

Liabilities against assets subject to finance lease - - 7 9 17

Accrued markup 46 46 36 50 46

Current Portion of Long-Term Financing 57 70 53 58 97

Current Portion of Liabilities against assets subject to finance lease - - 3 4 8

Short-Term Borrowings 2,840 3,294 3,487 3,197 3,887

Non-Current Liabilities 197 228 239 315 499

Current Liabilities 3,410 4,250 4,191 3,707 4,593

Net Debt 2,958 3,515 3,666 3,375 4,267

Stock-in-trade 3,370 4,690 4,830 4,506 5,240

Trade debts 575 521 482 384 542

Trade and other payables 83 364 327 195 333

Cash Flow Statement

Cash Flow from Operating Activities -719 -320 -68 362 -409

Cash Flow from Investing Activities -172 -176 -86 -38 -460

Cash Flow from Financing Activities 375 430 171 -353 891

Net increase in cash and cash equivalents -516 -66 17 -28 22

Cash and cash equivalents at the beginning of the year 684 166 100 118 89

Net Cash Balance 166 100 118 89 111

Required:

a) Build a relative market valuation model by calculating PE and PB ratios for CY2017 and

CY2016.

b) Comparing par value of the stock @ USD 10/share, strike price of USD 26/share

represented a share premium of USD 16/share. Based on financials given in the grids and

your calculations above, do you think the stock was valued: fairly, over-valued or

undervalued at the time of IPO? Explain with cogent reasons.