Karachi, September 08, 2021 (PPI-OT): Octopus Digital – Buy with TP of Rs90

Octopus Digital provides After Market Support (AMS) services to clients both in the local and international markets. The company offers a range of services from provision of parts, repair and maintenance and digital services for the equipment installed at the customers’ site.

The company intends to raise Rs793mn at a floor price of Rs29/share, through an Initial Public Offering, to develop and launch various digital dashboard platforms for industrial and manufacturing sectors. Book building dates of the issue are Sept 9 and 10, 2021. These dashboard solutions provide the owners and management of client companies with a real time picture of key performance indicators relevant to their business. The company plans to replicate the After Market Support (AMS) business in Asia and Africa along with expanding in Middle East.

We recommend investors to subscribe up to the upper limit of Rs40/share as our Jun-2022 Target Price comes around Rs90/share.

We expect EPS to grow at a CAGR of 48% during CY20-26F. Our TP arrives at using Free Cash Flow to the Firm with a risk free rate of 9.0%, Beta of 1.0 and equity risk premium of 6.5% to arrive at a cost of equity of 15.5%. We have taken cost of debt of 9.0% and effective tax rate of 5% to arrive at a WACC of 14.6% for Octopus Digital. Our forecast indicates EPS of Rs3.1/5.3/8.1 for CY21/22/23.