THE FIRST MEAT SECTOR IPO: AL SHAHEER CORPORATION
THE FIRST MEAT SECTOR IPO: AL SHAHEER CORPORATION
The First Meat Sector IPO: Al Shaheer Corporation
THE CONTEXT
This case examines the June 2015 decision of Muhammad Asad, a fund manager at Al Meezan Investment Management Limited, to participate in the Initial Public Offering (IPO) of Al Shaheer Corporation, a leading meat sector company of Pakistan. He was interested in increasing the exposure of the Meezan Islamic Fund (MIF) to the food sector, provided attractive risk-adjusted returns could be achieved. Based on the research team analysis and his own assessment, Asad had to decide whether to participate in the IPO book building process and the number of shares to bid for at each price level. Both market multiples and discounted cash flow (DCF) valuation methods had yielded share value higher than the IPO floor price of PKR 43 per share, which encouraged Asad to consider the investment opportunity. He also had to decide on the amount that he could allocate to the IPO on behalf of MIF. Asad had to prepare his recommendations on the IPO for presentation and approval by the investment committee in the upcoming meeting. He has asked you to conduct an independent analysis and valuation of Al Shaheer stock over the weekend and share your findings with him early Monday morning.
THE DECISION
Muhammad Asad, a fund manager at Al Meezan Investment Management Limited, skimmed through an equity valuation report as he reflected on the issues that had come up in a long discussion with the equity research team which concluded on Friday evening, 5 June 2015. The discussion had focused on the upcoming initial public offering (IPO) of Al Shaheer Corporation, a leading meat sector company of Pakistan. The research team was led by Ali Asghar, senior manager research, and an equity analyst, Hassan Khan, who specialised in food sector research. Both Asad and Ali had recently attended the pre-IPO road show and had interesting discussions with Al Shaheer senior managers and the research analysts of the lead underwriters, the AKD Securities Limited (AKDS) and the Next Capital Limited (NCL). The book-building portion of the IPO was scheduled to open for subscription on 10-11 June 2015. Asad, who managed the leading Shariah-compliant equity fund, Meezan Islamic Fund (MIF), was interested in increasing the fund’s exposure to the food sector, provided attractive risk-adjusted returns could be achieved. Based on the research team’s analysis and his assessment, Asad had to decide whether or not to participate in the IPO, and in the event of participation in the book-building process the number of shares to bid for at each price level. The research team had used the market multiples and discounted cash flow (DCF) methods for IPO valuation. Both methods had yielded share value higher than the IPO floor price of PKR 43 per share, albeit significantly different, which encouraged Asad to consider the investment opportunity. However, since the upper price limit of the offer was not specified, his dilemma was not to bid too low and be priced out or bid too high, giving up the upside potential if the offer price settled at the higher end. He wondered if he should make a single limit bid or step bids at different price levels in the book-building exercise. In addition, Asad had to decide on the amount that he could allocate to the IPO on behalf of the MIF. Asad just had the weekend to prepare his recommendations on the IPO for presentation and approval by the investment committee in the meeting scheduled for Monday, 8 June 2015.
Seyyed, F.J., Butt, A.S., and Ashfaq, H. (2017). The First Meat Sector IPO: Al Shaheer Corporation. Asian Journal of Management Cases, 14 (2), 65-87.
About the Authors
Fazal J. Seyyed is visiting faculty at the SDSB, LUMS. He teaches courses in corporate finance, accounting & finance, and investments. He is the director of Accreditation and Quality Enhancement at the SDSB. His research interests include investment analysis and portfolio management, asset pricing and capital markets, financial markets structure and efficiency, and behavioural finance. His research has been published in Financial Review and the Asian Journal of Management Cases.
Email: fazal.jawad@lums.edu.pk
Arslan Shahid Butt is teaching fellow at the SDSB, LUMS. He teaches courses in financial reporting, financial analysis, investments, and managerial accounting and control systems. His research has been published in the Asian Journal of Management Cases.
Email: arslan.butt@lums.edu.pk