A 20 million share placement for Esprit Holdings was completed yesterday (Thursday) at a slim 3.7% discount to spot. Pricing was aggressive given the stock had surged 8.9% on the day and marks the third placement in the space of a year.
JPMorgan led the deal, which raised HK$576 million ($74 million) on pricing of HK$28.80 per share. This was the tight end of a HK$28.84 to HK$28.80 range.
Books were kept open for about five hours in order to catch US investors and closed 6 times oversubscribed with demand from about 56 accounts. Prior to allocations, the book had a split of about 40% Asia and Europe, with 20% from the US.
Observers say one of the reasons why investors were prepared to accept another deal is because it had been expected for some time. The selling shareholder, Jurgen Friedrick, was one of the original founders of Esprit but has now retired and looking for funds to build a new house.
Friedrick and chairman Michael Ying are the only two individual shareholders who hold more than 20 million shares in the company and the former has now reduced his stake from 8.6% to 6.88%. Similarly Ying sold a 4% stake back in October raising $154 million at a 5% discount to a then spot price of HK$23.45. This deal was led by Credit Suisse First Boston.
In the context of the company's trading volume, the new deal is quite small, representing just six days trading.
Esprit's share price has also been a roll thanks to record profits announced earlier this week. The company said that net profit is up 53% year-on-year and gross margins up 0.7% to 50.6%.
Much of this growth derived from foreign currency gains as the result of a dollar-linked Asian manufacturing base and euro-linked revenue base. However, analysts believe the stock still has upside as the company seeks to further penetrate the US market and expand further into Europe, particularly the UK.
Year-to-date the stock is up 15.67% and 101.71% on a 12-month basis. It is trading on a 2004 PE ratio of about 18 times.