Junior Derrimon eyes APO

Derrimon Trading Company plans to approach the market with an additional share offer, or APO, the first junior market company to join others on the main exchange seeking to raise fresh capital through new share issues, assuming shareholders vote yes on the plan at their upcoming meeting.

Given the cap on share capital for junior companies, there is a limit on how much funds Derrimon could raise from the APO.

With its share capital now at $140 million, the distribution company could approach the market for as much as $360 million more which would take it to the $500 million limit to which junior market companies are confined. A more ambitious target would require Derrimon to migrate to the main market.

The company has in the past favoured debt and preference shares in its fundraising efforts, pushing its borrowings to date to $2.1 billion. It’s last preference issue in 2018 raised $350 million.

A date is still to be announced for Derrimon’s annual general meeting where the APO plan will be put to a vote. Meanwhile, the Derrimon’s subsidiary company, Caribbean Flavours & Fragrances Limited, CFF, is planning a stock split to make the stock more accessible for trading by junior market investors.

CFF’s board will vote Thursday, August 27, on the proposal to increase the authorised capital from 91.452 million shares to 2.6 billion, and split the stock 10 for 1, which would grow the shares from 89.92 million units to 899.2 million. The flavour company is targeting September 23 as the effective date for the stock split.

Derrimon’s plan to raise fresh equity capital comes amid a depressed market, which is down 28 per cent across all indices. Junior stocks are also down 24 per cent, but Derrimon’s stock is among those bucking the trend. It’s up 8.2 per cent year to date.

The trading company’s six-month financial results, which take in the shutdown of the economy to manage the spread of COVID-19, recorded profit of $85 million on revenue of $6.3 billion, much of it attributable to the performance of Caribbean Flavours. The subsidiary earned a profit of $310.5 million in the same period, a gain of 37 per cent year on year.

“Some of that growth came from our quick decision to move into hand sanitisers, but majority of the growth came from our core business, particularly from increasing sales of disinfectants and soap during the outbreak of COVID-19,” said Cotterell, who is also managing director of CFF.

Caribbean Flavours’ achievement of global food safety and quality certification last year also helped the company to capture new business in markets like Canada and the United States.

The company’s core business is the production of flavourings for commercial food companies, but has been adding new product categories, including hand sanitisers earlier this year.

CFF’s improved earnings have been rewarded by the market. The stock, which is outperforming the market, is up 26 per cent. It closed at $18.90 on Tuesday, its highest price year to date.

Cotterell says the split is meant to make the stock even more attractive.

“It’s something that we have been contemplating for quite a while and the company is having a very good year this year, so we think shareholders can benefit from better trading of the stock because it is not very liquid,” said Cotterell, who is also managing director of CFF.

Cotterell was tight-lipped, however, on the details for the upcoming APO, including what the raised funds will be used for.

Other companies that have executed or contemplated APOs include JMMB Group, which executed its issue at the end of last year; Proven Investments, which launched its offer but allowed it to lapse when market sentiment turned in March; Barita Investments, which opened its offer this week seeking to raise between $9 billion and $13.5 billion; and Sygnus Credit Investments, whose plan is to be voted on by shareholders next month.

karena.bennett@gleanerjm.com