Pakistan’s Symmetry Group Limited (SGL), a technology oriented company which provides digital transformation, digital marketing and advertising services, is planning to complete its initial public offering (IPO) by the mid of March this year, targeting a raise of Rs 430 million.
According to the company, it plans to list on the main board of the PSX, with the total issue size of up to 72.2 million shares, about 31% of the post-IPO paid up capital, priced at Rs 5.50 per share.
The company has been on an impressive growth trajectory, with its profit after tax posting 112% growth in 2020, 60% in 2021 and 24% growth in 2022, and the company’s net margins have been clocking in at 20% or more for the last two years. Revenue on the other hand grew from Rs232 million in 2020 to Rs286million in 2021 and Rs341.5 million in 2022.
After the new raise, Symmetry aims to continue to take the trajectory of growth. The situation, however, might not look conducive to a listing on the stock market, since the overall macroeconomic doom and a surge in global inflation has hit tech valuations locally and globally. As a result, the listed tech companies on the Pakistan Stock Exchange (PSX) are also witnessing a downward spiral of their stock value.
But because it is going to be listed in the tech category of the exchange, the company has the opportunity to hit the bullseye on getting the desired valuation. Because despite the drop in stocks, tech companies are still getting beefed up multiples. This presents itself as an opportunity as well as a risk. Because for long, Symmetry has been identified as a digital marketing firm and not a tech firm, like Systems or Netsol. Would the market be willing to give them the valuation befitting of a tech company? And how have they hedged themselves?
The Symmetry Group
In 2003, Symmetry Group Limited was founded with an initial investment of Rs150,000 as a digital marketing company, roping in Telenor as its first client and the ran the campaign of Telenor’s famous mobile phone plan DJuice.
on marketing tech and digitalization of marketing, sales and other consumer facing functions of organizations. In 2009, Sarocsh Ahmed and Adil Ahmed formed a new company, Symmetry Digital Pvt Ltd, which acquired Symmetry Group at a cost of Rs42.7 million. In 2010, in order to increase the market share, the board of Symmetry Digital decided to form a new company as a wholly owned subsidiary of Symmetry Digital. This new company was called Creative Jin Pvt Ltd. In 2012, the Symmetry Digital Private Limited, decided to establish the second wholly owned subsidiary under the name of Iris Digital Pvt Limited. At the same time, another entity under the name of Symmetry Group Pvt Limited was also incorporated which then became the holding company of Creative Jin, Iris Digital and Symmetry Digital. In 2017, Symmetry Group Limited was converted into a public unlisted company. In 2021, Symmetry Group Limited decided to close Creative Jin and transfer its business into Symmetry Group. Today, there are three operating companies within the group; Symmetry Group Limited as the parent company, Symmetry Digital which is a majority owned subsidiary of the company, and Iris Digital the second majority owned subsidiary of Symmetry Group.
From a digital marketing company in 2003, Symmetry Group now says it has now moved on to become a company that is focused on marketing technology and digitalisation of marketing, sales and other consumer facing functions. Its clients now include the biggest telco in Pakistan, Jazz, for whom they are exclusive partners running their digital campaigns.
For the most part, Symmetry has been known for its work in the digital marketing side of business but now claims that digital transformation, which involves application of data sciences to create actionable insights, digital strategy, web, software & application development, loT devices and consultancy services have taken over as the other dominant part of the business. What this means is that Symmetry is now essentially a digital technology and experiences company with a focus on the transformation and digitalization of marketing, sales and other consumer centric functions of organizations.
Digital transformation is a booming business that fundamentally transforms how a business or an organisation is run. One of the best IPOs in Pakistan was done by a digital transformation company Octopus Digital, whose initial public offering was oversubscribed by over 27 times.
Symmetry’s clients range from working exclusively with Jazz to big FMCG companies such as P&G, Unilever, Colgate-Palmolive and Gillette. In the banking and fintech space, Symmetry has clients such as HBL, MCB, Faysal Bank and JazzCash; as well as other clients such as Philip Morris International and Khaadi.
Normally, a company the size of Symmetry should be considering listing on the GEM Board of the exchange, launched in 2019. It is important to note that Symmetry is not a big company, it is a growth company, and the GEM Board listing fits the profile with lower costs and regulatory requirements of the listing.
Perhaps, the rationale behind not taking the GEM route is that listing on the GEM Board might be a fruitless and risky endeavour, since there have been flops on the board. According to officials familiar with the workings of the GEM Board, there aren’t many active investors on the board whereas, on the main board of PSX, retail investors are abundant, presenting a better shot at a successful IPO.
“Symmetry is actually slotted to be the first company to be listed on the SME Board of the PSX. However, the company went through a round of private equity funding at that time because of which the listing was put on the backburner,” says Omar Salah, head of corporate finance and advisory at Topline Securities, the advisor to Symmetry on the IPO.
The company has earlier given a successful exit, a profitable one, to a private equity investor. In 2017, Pakistan’s marketing and advertising firm BullsEye Communications invested in and acquired 51% stake in Symmetry Group at a share price of Rs7.5. The investor, BullsEye, eventually took an exit in 2022, transferring its stake in the company to private equity firm Himmah Capital Ltd. The co-founder of Himmah Capital, Syed Asim Zafar occupies a seat at the SGL Board. The exit transaction saw the shares sold at Rs3.3 per share, a price that was lower because the initial investment by BullsEye was followed by at least three rounds of capitalisation resulting in a lower share price but a profitable sale, according to Adil Ahmed.
That is when the idea for the IPO was also conceived to meet company’s growth targets. At the same time, Symmetry has shunned venture capital investment. Sarocsh Ahmad, the other co-founder and CEO of the company said that Symmetry is past the startup stage, and has become a stable business, generating its own profits, henceforth no longer befitting the profile of a VC investor.
It is now instead poised to make the company public at the main board. According to its Information Memorandum (IM), the Symmetry Group plans to expend Rs307 million from the total raise for the development and launch of five independent intellectual properties (IPs). These IPs will provide SaaS platforms for consumer insights, visualisation of key performance indicators, and other critical information to aid businesses in their decision making process. In short, with the IPO raise, the company plans to increase focus on the digital transformation component of the business.
“The company’s aggressive local and global growth plans require capital investment and our IPO will facilitate this. The capital injection from the IPO will boost the Company’s financial standing and enable it to develop & launch state of the art, innovative & future-tech based products and IPs where AI and data science will be at the heart of everything. In the next 2 to 3 years, all of this is expected to boost share of company’s export earnings to 45%-50% of its total revenues,” Adil Ahmad, founder and executive director at SGL told Profit.
Following the investment, the company projects that its revenue will grow by 38%, reaching Rs 469.9 million in 2023, Rs 642.6 million in 2024 and crossing the billion rupee mark in 2025.
“Digital marketing, which encompasses all media pertaining to Meta, Youtube, Google, TikTok and SnapChat, as well as variations of influencer marketing, the combined spend on these mediums is $175 million in Pakistan, providing Symmetry a great opportunity to grow,” said an expert.
They added that “The digital transformation coming in the country also presents a great opportunity for growth of the company’s transformation division.”
The only question that remains unanswered is whether the IPO would be able to get the right traction and if the target of the raise would be accomplished, keeping in mind the current state of the economy.
The situation of currently listed tech companies is far from well, with some of the best performing tech companies experiencing a markdown in their market valuation. Systems Limited, for instance, has lost about half the value of its stock on the PSX since March 2022, when Imran Khan’s government was ousted and political upheaval translated into economic uncertainty. Avanceon has lost slightly less than half of its value on the PSX, falling from over Rs100 per share in the beginning of March last year to Rs 68 per share by February 9, 2023. Netsol is more or less in its usual territory, with a slight drop in share price, whereas TRG remains the only company that has somehow maintained an upwards trajectory in the last few months. Conversely, TRG is also considered one of the most unpredictable stocks on the PSX and is counted as one that is considerd manipulated, as well.
At the same time, the performance of these tech companies has been better than the other sectors, and in these turbulent times, the PE (price to earnings) multiples of tech sector has been 17x. Furthermore, Octopus Digital had one of the best IPOs for a digital transformation business. So if Symmetry Digital is positioning itself as a business with a significant digital transformation business on the marketing side of things, chances are that it will also be able to gain significant traction.
Because according to a CEO of one of the prominent marketing and advertising firms, digital transformation is the way to go for the industry. That is what Symmetry now claims it is focused on.
Because of the significantly better performance of the tech stocks, Symmetry’s valuation is discounted to account for turbulent times. “The public offering is being conducted at a significant discount to fair value of the company, based on the business plan.”
At Rs5.50 per share, based on annual earnings for trailing twelve months (TTM), translates to a trailing price to earnings (P/E) multiple of 15.20 times, as compared to industry weighted average of 16.85 times offering a discount of 10% from the industry. At Rs5.5 per share, the price to earnings multiple for Symmetry based on estimates for 2023 comes out to 12.23x post IPO, according to the company prospectus.
“If you look at the historical financials, the company has shown very sturdy growth patterns which are expected to continue in future. Hence, the price of Rs5.5 per share is fairly justified and offers significant upside to incoming investors,” Adil said.
“The stock market has remained rangebound over the past few years and during this time, several IPO transactions have also been concluded. Symmetry Group has growth plans and the capital is required to be injected to successfully implementing these plans,” Adil said, rationalising the company’s decision to go for an IPO during an overall macroeconomic downturn.
“We could have taken the offer for a book build but we decided, keeping in mind the market situation, to offer fixed price so that the company gets the investment and the investor also gets an upside. Hence, it was priced at Rs 5.50 per share,” Omar Salah said.
“Brokers and market participants usually complain that our investors don’t increase. This being a Rs 5.50 per share offering. We’ve priced it as such so that even in conditions like the present, it will attract retail investors. Secondly, and more importantly, there are very attractive valuations in the technology space. It all depends on the products that the company wants to make.”
“Symmetry is also uniquely placed because they have a 20/80 mix of foreign and local. We see that increasing to 50/50 over the next few years,” says Salah.
While the macroeconomic crisis persists, Symmetry remains optimistic. All we can do is wait and see how the company’s ambitious plans with their bold decision to seek an IPO will turn out to be.