Fontana hunting new sites to expand

Pharmacy company Fontana Limited will wrap up the development of its sixth store next year in Kingston, but is already looking for new sites in Montego Bay and Portmore to expand the chain even further.

Fontana disclosed the expansion plans as it positions to become the first pharmacy business ever to list on the Jamaica Stock Exchange.

Its initial public offering of 249.9 million shares opens for subscription on Thursday. At $1.88 per unit, the company is aiming to raise $468 million on the junior market of the exchange. The offer will bring Fontana's total shares to 1.25 billion units, which would value the pharmacy company at $2.35 billion. but that valuation will likely change, based on the level of subscription for the IPO.

The Kingston outlet at Waterloo Road is projected to grow the company's "footprint by 40 per cent" or 28,000 square feet, Fontana said in its prospectus, but the company did not offer a projection of what that meant in increased sales.

Concurrent with the development of the new store, "the directors continue to actively monitor further opportunities to expand the retail footprint, particularly in Montego Bay and Portmore, St Catherine," said Chairman Kevin O'Brien Chang.

Fontana's annual sales amounted to $3.4 billion, from which it made pre-tax profit of $303 million at year ending June 2018. Sales in the previous year amounted to $3.1 billion, but pre-tax profit was higher at $321 million.

In the quarter ending September, the company improved sales by 5.5 per cent, while pre-tax profit rocketed 352 per cent to $52 million from $11.5 million year-on-year.

The company said sales and earnings were impacted at its two main locations: by roadworks for the Barbican, Kingston outlet, which affected access to the site; and by the government's zones of special operation security measures at the Fairview, Montego Bay store, which reduced its opening hours.

Both locations contributed 62 per cent of revenues in 2018, down from 63 per cent. The result was that revenue grew at a slower rate than costs of sales and operating expenses, leading to a seven per cent fall in operating profit.

REBOUND EXPECTED

"The directors of the company expect total sales to rebound in the next financial year, given the completion of the roadworks that affected the Barbican store in Kingston, and the opening of the Waterloo Square branch," Fontana said in its prospectus.

The pharmacy company will list at roughly half the market multiple, or about 7.5 times earnings in a market that is trading at around 14 times earnings.

In response to whether the listing was being done at too cheap a price, Scotia Group executive Dr Adrian Stokes said at a briefing by the banking group last Friday that the pricing will allow for capital appreciation for investors in the stock.

"These decisions are taken in consultation with the client and our investment banking persons. We believe that the move we have made in terms of bringing them to market at this price is the right thing to do for the client," said Stokes, president of Scotia Jamaica Life Insurance.

The IPO is being arranged by Scotia Investments Jamaica Limited, a Scotia Group subsidiary. The subscription period runs from December 13 to 20.

Fontana's five-branch network spans over 65,000 square feet of store space, and employs 330 members of staff. The pharmacy stocks a range of health and care products, housewares, cosmetics, toys, and other consumer items.

Fontana Pharmacy was opened on November 30, 1968 by Bobby and Angela Chang. The group is now run by the second generation of Changs.

Fontana Waterloo is scheduled for completion by the third quarter of 2019. The pharmacy's other locations include Eight Rivers Town Centre in Ocho Rios, and Beckford Plaza in Savanna-la-Mar, Westmoreland.

business@gleanerjm.com