According to The Star article published on April 11, 2023, MIDF Research is generally optimistic on bottled water company Spritzer Bhd’s announcement last week of a one-for-two bonus issue of ordinary shares, expecting the exercise to increase the company’s trading liquidity at a reasonable share price without affecting its market capitalisation.
The research house said the new issue, whose entitlement date has yet to be determined, could promote greater investor participation and perhaps expand the shareholder base of Spritzer.
“As of the final quarter of its financial year ended Dec 31, 2022 (4Q22), Spritzer had a healthy balance sheet with a net cash position of RM5.6mil. Additionally, the group has a proven track record of generating positive operating cash flow since being listed.
“As such, this demonstrates that the group is financially sound and can keep producing cash flow to pay dividends ahead,” said MIDF Research in its latest report.
The research house further noted that the proposed bonus issue is expected to be completed by the end of the current fiscal quarter ending June 30, which would then see Spritzer’s share base expanding by 50% to 319.3 million shares.
It said, “We note that Spritzer had on Feb 27 proposed a final dividend of 6.25 sen per share for the year ended Dec 31, 2022 (FY22), subject to shareholders’ approval at the upcoming AGM. This translates to a dividend yield of 2.6% for FY22.”
The research house also maintained its “buy” recommendation on Spritzer.
MIDF Research is also positive about the group’s outlook, underpinned by its defensive business nature which is propped up by improving demand for bottled water in Malaysia that is supporting the sales volume.
Increased demand for out-of-home beverage consumption due to the return of tourists and normalising out-of-home activities post-reopening of national borders, as well as the group’s recent acquisition of 1,227.6 acres of land in Bukit Gantang, Perak for the expansion of an additional mineral water plant are also factors for this.
Furthermore, there have been encouraging reports recently stating that the high silica content in some bottled water brands such as Spritzer’s is an important element in lowering the incidence of aluminium toxicity, which is linked to Alzheimer’s Disease, especially in light of the fact that the metal is widely used as an adjuvant in vaccines.
While anticipating that the bonus issue would dilute the group’s earnings per share, MIDF Research has reaffirmed its target price of RM2.80 for Spritzer pending the completion of the issue exercise.
It added the group was currently trading at an attractive forecast price-earnings ratio (PER) of 9.2 times for FY24, compared to its two-year historical average PER of 13.8 times.
