Spotlight: Lopez Holdings Corporation (LPZ)

Business Overview

Formerly named Benpres Holdings Corporation, Lopez Holdings was incorporated in 1993 by the Lopez family to serve as the holding company for investments in major development sectors such as broadcasting and cable; telecommunications; power generation & distribution; and banking.  It added to its portfolio, investments in other basic service sectors but has since sold its interest in banking, toll roads, information technology, property development and health care delivery.

Its current interests are in multimedia communications, including broadcast, cable and telecom, and power generation, especially in the development of clean, indigenous and/or renewable energy sources.  No new business were developed in the last three years.

Subsidiaries

1.) ABS-CBNBroadcasting Corporation (60.3%)  - Broadcasting and Communications
2.) Amcara Broadcasting Network, Inc.  (49%) - Broadcasting and Communications
3.) Bayanmap Corporation (51%) - Information Service Provider
4.) Bayan Telecommunications Holdings Corporation (BayanTel) (47.3%) - Telecommunications
5.) First Philippine Holdings Corporation (46.6%) - Power Generation and Distribution
6.) Star Cinema Productions, Inc (45%) - Movie Production
7.) Sky Vision Corporation (33.1%) - Investment Holdings

Key People 

Manuel M. Lopez, Chairman and CEO of LPZ

1.) Oscar M. Lopez - Chairman Emeritus.  Former President and CEO.  Also Chairman Emeritus of First Philippine Holdings (FPH) and a director of Rockwell Land and ABS-CBN.  BA and MA in Public Administration, Harvard.
2.) Manuel M. Lopez - Chairman and CEO.  Former Meralco President (1986-2001) and Chairman (2001-2012).  Current Chairman of Rockwell Land, Sky Cable and Bayan;  Vice-chairman of Lopez Inc; and a director of FPH, among others.  BSBA from Harvard.
3.) Eugenio L. Lopez III - Vice Chairman.  Chairman and CEO of ABS-CBN since 1997; Director of SkyCable and Vice Chair of the board & President of Bayan, among others.  MBA from Harvard.
4.) Felipe B. Alonso - Director.  Co-Vice Chairman of the board of Trustees of the Asian Institute of Management (AIM); former president (1990-1999).  Law from Ateneo and MBA from New York University.
5.) Washington Sycip - Independent Director.
6.) Cesar E.A. Virata - Independent Director. Director and Corporate Vice Chairman of RCBC.  Former Prime Minister of the Philippines (1981-1986).  BSME and BSBA from UP; MBA from University of Pennsylvania.
7.) Salvador G. Tirona - Director, President, COO, CFO.  Former Director and CFO of Bayan; Former CFO of Maynilad.
8.) Federico Lopez - Treasurer.  Chairman and CEO of FPH and First Gen Corporation.  Director of ABS-CBN and FGEN subsidiaries.   Graduated from University of Pennsylvania.
9.) Miguel L. Lopez - Vice President and Head of Corporate Affairs.  Director of Rockwell Land.

* Oscar and Manuel Lopez are brothers.  Eugenio Lopez III is their nephew.  Federico Lopez is Oscar's son while Miguel Lopez is Manuel's.

Dividend Policy

Subject to approval by the Board.

History of Default

LPZ (then Benpres Holdings) had a history of defaulting from its debts.  The company declared a standstill in 2002 with as high as $560 million in debt obligations.  For a decade, they have been restructuring their debt payments, some of which were paid at 65% of the principal amount while the others were earlier paid back at par.  Lopez Holdings got hit hard by the Asian Financial Crisis in the late 1990s, wherein the peso depreciated greatly amid huge dollar loans.

Quick Numbers

Fundamentals

Book Value of Equity (3Q 2012): ~Php56.18B

Outstanding Shares: ~4.58B

BV/share: Php 12.26


Debt Ratio (Long term): 19%
Beta: 0.94
Cost of Capital: 6.4%


Net Income: 
2012 3Q:  Php 9.12B (projected)
2011:  Php 5.05B
2010: Php 14.53B
2009: Php 12.69B   

time-weighted average NI: Php 9.34B


A conservative assumption of long-term growth (3% yearly), would put the fair value of the company  (based on earnings - DCF analysis) at around:

Fair Value/share: Php39.88 

As of January 18, 2013, the closing price is at 6.78 at conservative growth estimates makes this another multi-bagger stock.  This makes sense as we also gave a high valuation on ABS-CBN, to which LPZ owns 60%.  Other than the media industry, the company is also exposed to the power sector, having great growth prospects in the Philippines.  The earnings; however, may be a bit bloated due to the company's previous sales of stakes (i.e. Meralco) which are non-recurring gains.

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Technicals

Given strong fundamentals based on the company's yearly earnings for the past 4 years, I now view the chart from a long term perspective.  Recent prices are now flirting with the 3 year high of 6.8.  Either this will become a new support or (hopefully not) a bull trap.  If it continues to go up further, it may follow the up trend range (green); else, need to setup a cut loss point somewhere below 6.8.  

Analysis

The high valuation of LPZ is consistent with the recent valuation of ABS for which is majority-owned by the company.  The difference for the 2 stocks would be LPZ's exposure on the power sector which gives the benefit of diversification as compared to being fully exposed to the media sector only (ABS).  In effect, LPZ will also earn more due to the election season, plus revenues coming from electricity generation when new plants become operational.

As the charts still show some vague bullishness, I have already entered initially and will accumulate more if ever prices drop in the short term. The Lopez family aims to wipe out all their debts (around $7.5million left) as they have already sold assets and stakes in other companies (i.e. Meralco).   New investments will be pushed through after the restructuring is over.

References: Financial Statements of LPZ (3Q 2012, AR 2011)
                    Images via Google search

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This post does not give a comprehensive analysis on the company/industry.  This is only a summary or a company snapshot as of the date it was posted.  Spotlight stocks featured in this blog are being chosen arbitrarily, and are only intended for the blog owner's personal consumption; not as a form of solicitation to buy or to sell.  Comments from readers who would like to point out errors, to share ideas, etc are most welcome.