CPG's 800 Million Peso Share BuyBack Program

I have previously covered Century Properties Group (CPG) in this blog but that was already around 2 years ago; thus, this badly needs an update.  Looking at the historical chart, one can see 2.42 as a major resistance and that the stock price have long been in a bearish trend for more than 1 year.

On hindsight, it would be easy for me to say my fair value (FV) price of 2.43 (Spotlight: CPG) was spot on; but I'd say getting close to that resistance level was more of a coincidence.  I only use FV calculations as a guide in spotting undervalued companies , and not as a predicting tool.

My selling strategy with stock prices which had a parabolic rise is to sell when prices revert back to a short term moving average (i.e. 20 SMA).  One good use of having a FV is in avoiding bear traps (i.e. selling too soon).  That was a good +45% gain and an escape for me from the imminent breakdown.

Steep rise by the end of 2012

Looking at the company disclosures, I don't see much relevant news except the announcement of the 800 Million, 2-year share buyback program which was announced on January 8, 2013.  Seems like some insiders already bought before the announcement, and as soon as CPG started buying back millions of shares, the rise continued.

Sudden crash in May 2013?

Another interesting event was the declaration of increase in Authorized Capital Stock (ACS) on May 17, 2013.  Although I think increasing ACS does not usually have an effect, seemed like the news was received negatively by the market.  This may be because of the big increase from 10B to 18B authorized capital which may imply dilution soon in the form of new equity sales (i.e. private placement, SRO, etc). At the same time, 25% stock dividends were also declared; however, this remained to be TBA until now.  Good thing I went out before that plunge.

Company BuyBack

BuyBacks can be seen as positive flags, wherein the company itself sees its own stock being undervalued.  In the chart above, the yellow spots indicate the time when CPG bought back its shares.  You may also refer to the table below for the figures.  As for the green spots, these are the times that I have bought for accumulation.  If I compare myself with an 800M Peso buyback fund, then certainly buying below what the CPG (average: 1.51) has been buying so far makes me feel more comfortable.  This is a 2-year program, and CPG has barely used its ammo with just3% (26M) bought so far.

Buybacks:

Date	Shares	Price per Share
January 9, 2013	1.5 M	1.73
January 10, 2013	2.7 M	1.73
January 23, 2013	236 k	1.75
June 17, 2013	3 M	1.73
June 26, 2013	2 M	1.48
August 1, 2013	5 M	1.33
September 24, 2014	1.22 M	1.26
September 25, 2014	500 k	1.31
October 1, 2014	620 k	1.26
October 2, 2014	500 k	1.25
TOTAL	17.27 M	Average: 1.51

Cumulative Number of Shares Purchased to Date 1	17,270,000
Total Amount Appropriated for the Buy-Back Program	800,000,000
Total Amount of Shares Repurchased	26,124,898.16

(data from company disclosures:  edge.com.pse.com)

The company have bought shares recently at current levels, which could mean a good support above 1.2.

CPG still owes its shareholders some stock dividends as was promised.  Currently still TBA.  Take note, this can lead to further decline in the stock price due to dividend adjustment.

Year	Stock	Cash	Splits.	Rights	Ex-Date	Record Date	Payable
YEAR	STOCK	CASH	SPLITS	RIGHTS	EX-DATE	RECORD	PAYABLE
2014	20.65%	-	-	-	TBA	TBA	TBA
2014	-	0.019046	-	-	12-May-2014	15-May-2014	05-Jun-2014
2013	25%	-	-	-	TBA	TBA	TBA

(from COLFinancial.com)

In an article posted by the Prudent Investor last Oct 2013, he highlighted that CPG has been into aggressive leveraging with the current low-interest rate environment.  Putting all the above together, this explains CPG's corporate strategy which are as follows:

1.) Increase Leverage - take advantage of low interest rate environment to further Return on Equity.

2.) Increase of Authorized Capital Stock - High debt over equity would be bad for the books as it implies greater risk for the company (risk being shifted towards the lenders).   Increasing ACS signals that they will soon raise capital via equity, eventually lowering leverage ratios.

3.) Company Buyback program - Accumulation of treasury shares which may be used in the future for re-issuance.  Can be used as a signal for undervaluation (to support/push stock's price).  I don't think CPG is obliged to use up all the 800M peso for share repurchasing; it's more of an option for them.

4.) Stock Dividends - Retained earnings (i.e. cash) are kept by the firm and instead stocks are to be distributed to shareholders.

5.) Grand Finale:  Equity sale  - The preceding steps all lead to one thing:  CPG will most likely raise capital via share sales.  These can be in the form of private placements, Rights Offers, etc.

What's in it for retail investors like me?

I haven't checked again on the company's fundamentals (updated earnings, dilution effects, etc) to see if CPG is still being undervalued and has manageable risk (Hopefully soon!).  In terms of trading the stock, it is good to note relevant events that may trigger price movements, both positive and negative.  This gives me a more informed decision when timing my trades.

As in the case of the impending equity sale, this may not happen soon, but there would most likely be a build up on the stock's price before CPG will start raising capital via equity.  The company buybacks can be a good price entry point and accumulation is key while the stock is at its lows and at its least risky state (easy to cut loss during breakdown).  When the stock price starts to fly due to the increase of buying demand, that's the time to prepare for an exit before CPG starts declaring an equity sale.

As always for the readers, caveat.

Personal Disclosure: As mentioned earlier, I have been accumulating on this one, among other stocks.

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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.  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.