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MerryMart (MM) should raise more capital for expansion as shares rise

MerryMart (MM) share price has defied expectation rising 660% from its initial public offering price of 1.00 Pesos.  The crowd of retail investors drives the meteoric rise of MM’s share price.

MerryMart raised 1.5 Billion Pesos from the public offering.  The retailer aims to use the proceeds of the public offering to scale up operations. But how far can the 1.5 Billion Pesos go?

As of its latest disclosure MM has only 18 operating branches or stores.  As of the nine-month period ending September 30, 2020, MM earned a meager 14.5 Million Pesos and it was burning cash from its operations of 276.9 Million Pesos.

Despite MM’s meager results, MM’s share price has risen 660%.  MM has caught the eye of the retail investors who see the company’s business model as appealing.  MM, which has 18 stores as of its latest disclosure, has a Price/Book Value ratio of 26.68 beating Philippine 7-11’s (SEVN) Price/Book Value ratio of 10.68.  SEVN has around 2,930 stores.

To make sense of the meteoric rise of its share price, MM should issue more shares or make a follow-on offering at a higher valuation to raise more capital for expansion and scaling up, otherwise it will just be wasting this golden opportunity to raise more money, the crowd may find it unappealing someday.

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This analysis is an independent viewpoint on publicly traded stocks in the Philippine market.  Accuretti Systems Inc. trades stocks in the Philippine market.

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