Financial Adviser: 5 Things to Know About Jerry Liu's Figaro Coffee Group's IPO and How to Profit From It

Get to know more about Figaro Coffee before you invest in the IPO.

Retail food operator Figaro Coffee Group (PSE: FCG) will be the second company that will go public this year after it recently obtained approvals from regulators to raise up to P767 million in an initial public offering (IPO).

FCG will sell up to 1.023 billion primary shares, comprising about 22 percent of its total shares outstanding, at a price of P0.75 per share.

The offering period of shares will run from January 10 to 14, with a target listing date on January 24, 2022.

FCG will have a projected total market capitalization of P3.48 billion after the offering.

Bear in mind that when you buy the stock, you are also investing in the business. It will be good to spend some time understanding the business of FCG and evaluate its growth opportunities.

Once you are aware of the fundamentals of the company, you will have a better handle on the risk and return that you can expect from investing in the IPO.

Here are the top five things every investor needs to know about Figaro Coffee Group’s IPO:

1| Know the background of the company

FCG is majority owned and controlled by the family of Jerry Liu, who owns publicly listed global technology company, Cirtek Holdings Philippines (PSE: TECH).

FCG is a fast-growing retail food operator of home-grown brands such as Figaro Coffee, Angel’s Pizza, Tien Ma, TFG Express, and Café Portofino, which has a total of 99 company-owned and franchised outlets to date.

More than half of FCG’s total outlets, about 53 in total, are franchised while 46 outlets are company-owned.


Although FCG, by its name, may be known as a coffee company because of its coffee chain brand, Figaro Coffee, the company owns only 20 outlets while 35 outlets are franchised.

FCG is primarily a pizza company due to the aggressive growth of its brand, Angel’s Pizza, which has grown from 12 outlets in 2018 to a total of 35 outlets this year.

2| Know the earnings prospects of the company

A bulk of FCG’s total sales came from Angel’s Pizza for the past three years. Prior to the pandemic in 2019, Angel’s Pizza’s sales contributed about 56 percent of FCG’s total sales of P785 million.

This increased to 63 percent in 2020 as Angel’s Pizza benefited from the closure of competing stores during the height of the coronavirus pandemic, which helped FCG increase its total sales by 8.7 percent to P853 million.

This year, with the surge in delivery sales, Angel’s Pizza continued to dominate FCG’s total sales growth of 53 percent to P1.3 billion with 85 percent contribution.

The growth in FCG’s total sales in the past three years saw its net income growing by 49.9 percent in 2020 at P72.7 million from P48 million in 2019, and 167 percent in 2021 at P194 million.

Assuming total sales of FCG’s existing outlets continue to grow by 25 percent in 2022 with the reopening of the economy plus the expansion of 12 more Angel’s Pizza outlets, total sales should increase further by 46 percent to P1.9 billion.

At P1.9 billion sales with historical net profit margin of 14.6 percent, FCG should further increase its net income by 146 percent to P284 million by end of 2022.

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3| Know the risk and opportunities

FCG intends to use about 40 percent or P287 million of its IPO proceeds to finance its store expansion in the next three years.

The company plans to achieve a total of about 150 system-wide stores by the end of 2022 as part of its long-term target of 300 system-wide stores by the end of 2029.

A bulk of FCG’s expansion budget is allocated to Angel’s Pizza, which will expand by 12 outlets in 2022 and 23 more outlets in next two years.

FCG is also expanding its TFG Express from three to 18 outlets in three years. TFG is a multi-brand kiosk that caters to the ever-changing consumer market brought by the “new normal.”

The kiosk serves the top-selling products of Figaro, Angel’s Pizza, Tien Ma’s and TFG Online ,which offers an option for take-away, delivery and “park and eat” arrangement.

FCG is also allocating 49 percent of its proceeds to expand its commissary capacity to support its growth and 11 percent or P80 million to fully settle its outstanding debt.

FCG has relatively strong financial position with current ratio of 1.42 times and is practically debt-free.

4| Know the earnings quality of the company

It is true that earnings are important driver of future share price valuation, but not all earnings are the same.

Companies can accrual accounting to record any revenue or expense incurred, either as accounts receivables or payables, even if cash has not yet been received or paid.

One way to analyze a company’s earnings quality is by looking at its operating cash flows.


The operating cash flow indicates the capacity of a company to generate cash from the business.

If a company cannot produce adequate cash flows from operations, it will not be able to finance its expansion activities unless it secures funding from outside either by borrowing or capital raising.

A company that generates operating cash flows higher than its reported net income shows a higher level of earnings quality.

Historical data from PSE stocks from past years show that there is a positive correlation between the ratio of operating cash flow to net income to stock returns.

This means that the higher the ratio of cash flow to net income, the higher the prospect of stock returns in the future.

If we look at the financials of FCG, the company has been consistently generating positive operating cash flow to net income for the past three years—from 2.43 in 2019 to 1.13, though the trend has been declining as the company expanded.

With the reopening of the economy, the company should be able to maintain, if not improve, its ability to generate higher cash flows, hence higher long-term capital appreciation from better earnings quality. 

5| Know the pricing multiple comparables

FCG’s pricing multiple based on its net income ending June 2021 is 17.9 times, which is comparatively lower than the current market average of 18.5 times.

But if we compare FCG’s PE ratio against its closest comparables, Maxs’ Group (PSE: MAXS) and Shakey’s Pizza Asia Ventures (PSE: PIZZA), which both have negative PE ratios, FCG’s premium pricing appears to be relatively reasonable.


It is interesting to note that FCG, which only has 35 Angel’s Pizza outlets, has a market capitalization of P3.48 billion, which is about half of MAXS, which has 175 outlets of Yellow Cab Pizza.

The other way to compare FCG with MAXS and PIZZA is by looking at its Price-to-Sales (PS) ratios.

At its IPO price, FCG’s Price-to-Sales ratio is 2.61 times, which is way higher than MAXS’ Price-to-Sales ratio of 0.96, but lower than PIZZA’s Price-to-Sales ratio of 3.26 times.

The strong earnings growth of FCG during the pandemic compared to MAXS and PIZZA justifies its premium pricing based on sales.

Moreover, if we compare the net profit margin of FCG against MAXS and PIZZA, FCG has higher margin at 14.6 percent against MAXS’ historical pre-pandemic margin at 5 percent and PIZZA’s 10 percent.

FCG’s net income has been growing by compounded annual growth rate of 100 percent for the past three years from P48 million in 2019 to P194 million in 2021.

Given the fresh capital that it will be raising from the IPO, the company will most likely continue its aggressive growth in the next three years as it enters the hyper growth stage.

Higher earnings growth warrants the stock to trade a higher pricing multiple.

Henry Ong, RFP, is an entrepreneur, financial planning advocate and business advisor. Email Henry for business advice [email protected] or follow him on Twitter @henryong888  

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