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Friday, July 31, 2015

PCOR the Underdog

Nice to see Petron (PCOR.PS) which has been a battered stock since 2013 rise by +36% in just 1 day. At 3:15pm, the stock was trading at 7.33 then at pre-closing period at 3:20pm (where At-The-Close orders are being matched), the stocks were being bought automatically at Php10 by foreign broker DBP-Daiwa Whether it be a blunder of one trader (poor soul) or part of some window dressing activities, this is definitely great news for PCOR stuckholders (sic).

If indeed it was an operational mistake, it's not the first time that it happened within the PSE. I remember the ALI Super Sale back in August 2010 when the stock's price got sold down by 15% also at-the-close. Maybe the trader intended to post a GTC Sell (Good-till-canceled) but instead entered a GTC buy.

For holders, one cannot ignore the fact that we now have a foreign broker carrying Php41M worth of shares at Php10 a piece. This improves the chances of getting out of the price depression overhang set by 2 consecutive private placements in 2014 and the current global oil price rut. Of course, the next interesting part would be on how the prices will behave on next trading day (Monday, beginning of August).

Chart-wise, this looks like a mean reversion towards the 200-day Moving Average (~1yr horizon). It needs a bit more push to break the longstanding downtrend. Hopefully once positive quarterly earnings (despite low oil price) gets out, that could be a catalyst for a positive reversal.

Monday, April 6, 2015

Spotlight: Cebu Air, Inc (CEB)

Business Overview

Cebu Air, Inc. (the Parent Company) is an airline that operates under the trade name “Cebu Pacific Air” and is the leading low-cost carrier in the Philippines. It pioneered the “low fare, great value” strategy in the local aviation industry by providing scheduled air travel services targeted to passengers who are willing to forego extras for fares that are typically lower than those offered by traditional full-service airlines while offering reliable services and providing passengers with a fun travel experience.

In 2005, the Parent Company adopted the low-cost carrier (LCC) business model. The core element of the LCC strategy is to offer affordable air services to passengers. This is achieved by having: high-load, high-frequency flights; high aircraft utilization; a young and simple fleet composition; and low distribution costs.

For the past 3 years, 78% of the Company's revenues come from Passenger Services, 16% from Ancillary Services, and 6% from Cargo. According to Civil Aeronautics Board (CAB) data, Cebu Pacific is the leading domestic airline in the Philippines by passengers carried, with a market share of 60.8% for the year ended December 31, 2014.

Major Subsidiaries

Here is a complete chart of JG Summit Holdings, showing its 67.23% ownership of Cebu Air, Inc. Cebu Air recently acquired Tiger Air last March 2014 at a net cost of Php265.1M. (Goodwill offset by operational losses).

(Click the view larger image)

Key People

1.) John L. Gokongwei Jr. - Founder and Chairman Emeritus of JG Summit Holdings. Other notable companies he holds: Robinson Retail Holdings (Chairman & CEO), Oriental Petroleum & Minerals Corporation (OPM) (Director), MERALCO (director). MBA Graduate from De La Salle University and attended the Advanced Management Program at Harvard Business School.

2.) Ricardo J. Romulo- Chairman of the Board since 1995. Director of JGS, PhilamLife, Zuellig Pharma among others. Former Makati Business Club for 19 years (1987-2006). He is the brother of John Gokongwei, Jr. He received his Bachelor of Laws degree from Georgetown University and Doctor of Laws degree from Harvard Law School.

3.) James L. Go - Director since 2002. Chairman/CEO of URC Philippines and OPM. Chairman of Robinson Land. Director of PLDT since 2011. Director of MERALCO since 2013. Received his Bachelor of Science Degree and Master of Science Degree in Chemical Engineering from Massachusetts Institute of Technology, USA

4.) Lance Gokongwei- President and Chief Executive Officer of the Group since 1997. Other positions that he hold: President & CEO (Universal Robina Corporation) , President & COO (JG Summit Holdings, Vice-Chairman & CEO (Robinson Land), Chairman (Robinson's bank), Director (OPM and MERALCO). He is the only son of John Gokongwei. Received his Bachelor of Science degree in Finance and a Bachelor of Science degree in Applied Science from the University of Pennsylvania.

5.) Jose F. Buenaventura - Director since 1995. Senior Partner w/ Ricardo Romulo at their law firm. Board Member of BDO Unibank, Melco Crown, Philippine First Insurance, Philplans First, among others. Law graduate from Ateneo, Masters of Law from Georgetown University.

6.) Robina Y. Gokongwei-Pe - Director since 2007. President & COO of Robinsons Retail Holdings. Director of : Robinsons Land, JG Summit, Robinsons Bank. She attended the University of the Philippines-Diliman from 1978 to 1981 and obtained a Bachelor of Arts degree (Journalism) from New York University in 1984.

Dividend Policy

Regular cash dividends of Php1 per share were given for the past 3 years. In 2013, Special dividend of Php1/share was given.

Quick Numbers

Fundamentals

Book Value of Equity (AR 2014): ~Php21.54B

Outstanding Shares: ~606M

BV/share: Php 35.54

Debt Ratio (Long term): 57%
Beta: 0.88
Cost of Capital: 6.8% (estimated debt cost 3.2% but 6% max is used)

Net Income:
2014 : Php 1.06B
2013: Php 256M
2012: Php 3.52B
time-weighted average NI: Php 1.31B

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

Fair Value/share: Php 251.53

Cebu Air's Net Income has been volatile mainly due to 2 risk elements: Commodity price (oil) and Foreign exchange losses affecting loan interest costs. For 2014, Cebu Air incurred around Php2.3B worth of losses due to hedging (oil price drops) while in 2013, foreign exchange losses amounted to Php2B. Despite the fluctuations, if the company would be able to maintain around Php1B in Net income year on year, then the above Fair Value could be achieved, even more.

Notably, 2014's operational income is almost 2x the previous year at around Php4B. This goes to show that the company is very profitable, but just needs proper risk management to improve net profit margins.

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Technicals

Hopefully, it's a bullish pennant that we see onwards to breaking resistance at 98, or the price will retreat back to 80 levels (green upwards trendline which coincides with 200 EMA). Seems to me a range trade for some time until that resistance gets broken.

Analysis

No doubt, Cebu Air Inc is the leader in Philippine air transportation and we can see through its revenues that business is good. As mentioned earlier, the company should improve on its risk management strategies.

For a capital intensive company, it's good to see that debt costs are low for as much as 4-6%. Interest rate risk should also be monitored with the expense already reaching Php1B this year. For the year 2014, huge losses were incurred due to commodity price hedging (oil). It has been said that for every $10 change in oil price, its effect on the pre-tax income of CEB would translate to around Php1.7B. Not sure if the recent Php2B loss on hedging is to be considered as mitigated loss. Considering the drastic fall of oil prices last year, it could have been worse.

Would it be possible to sustain a Php1B Net income every year? It's actually just a small portion of the company's Gross Revenue at Php52B. So where did all the money go? Operating Profit Margin may be small as almost 90% goes to operational expenses. Php4B is alloted to depreciation costs, way bigger than the annual net income, but it is still ready cash for the company. The average age of CEB planes is just around 4 years, compared to a depreciable life of 15. This means a lot of the expenses are mainly capital outlays; that for the succeeding years, expenses are expected to drop. Operating Cash Flows is at Php7B on 2014, almost twice that of 2013.

Given that Cebu Air will continue to dominate Philippine air transportation even considering saturated growth maintained at current levels, the company remains to be profitable. Challenge left to Cebu Air executives is on how they can manage risk (they have lost a lot from financial derivatives -- should they continue?) and cost management to increase margins.

Personally, I have just started my position on CEB and will likely start to accumulate. I only first started monitoring this stock after COL released its 2015 guidance, showing a major upside for CEB. I wanted to take a look myself, and as it turns out, I even gave it a higher FV despite trying my best to use conservative assumptions. Another blog earlier posted a fundamental analysis on this stock which you should check out: http://www.alphainvestments.ph/is-cebu-air-truly-worth-php150/ . So far, it's unanimous, CEB is undervalued.

References: Financial Statement of CEB (AR 2014)
Images found 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.

Sunday, February 15, 2015

List of Philippine Preferred Shares

I have experienced call/prepayment risk firsthand as San Miguel Purefoods decided to redeem their Preferred shares (ticker: PFP) 4 years after its issue date last March 2011. The indicative dividend rate for PFP was 8% (@1000/sh) but since I bought mine at a premium (1009/sh incl. fees), this brings down my dividend yield to 7.14% (net). As the shares are to be redeemed less than 1 year since I started investing, I only get 3 out of 4 dividend payouts which gives me an actual yield of 4.5% (gross). Not bad, but could have been better.

Due to the early redemption, I need to find another instrument to shift these funds. I don't see any updated comprehensive list for Philippine Preferred shares; thus, created one on my own.

Since it is unlikely that you would be able to buy Preferred shares at Offer Price (unless you got it at IPO), it is important to check on the Yield to Maturity (YTM) with respect to the stock's price. There are lots of YTM calculators online which you can use to compute for the bond yield. Examples: Monkey Chimp and Investopedia

The list below only includes Preferred shares that has a history of giving out dividends consistently (behaves like a fixed income asset). Important things to note are the earliest redemption dates and examples of current yield with the default holding period of 5 years unless stated. Prices are as of 2/13/2015.

If there are other Dividend-giving preferred stocks that I have missed, please let me know on through the comments section and I'd gladly add them here.

Issuer	Ticker	Listing Date	Earliest Redemption Date	Offer Price	Div Yield	Yield to Maturity
Ayala Corporation	ACPA	11/25/08	redeemed		8.8800%	redeemed
Ayala Corporation	ACPB1	11/15/13	??	500	5.2500%	@502: 5.103% for 3 yrs; 5.157% for 5
Ayala Corporation	ACPB2	11/5/14	11/5/19	500	5.5750%	@505: 5.342% for 5
First Gen	FGENG	5/18/12	5/18/22	100	7.8080%	@106: 5.58% for 3 yrs; 6.37% for 5
First Gen	FGENF	7/25/11	7/25/18	100	8.0000%	@107.7: 5.16% for 3 yrs; 6.16% for 5
Leisure and Resorts World	LRP	11/3/14	any time?	1	8.5000%	@1.03: 5.34% if 1 year; 6.84% for 2 yrs
Petron	PPREF	3/5/10			9.5281%
Petron	PRF2A	9/3/14	9/1/19	1000	6.3000%	@1010: 6.06%
Petron	PRF2B	9/3/14	9/1/21	1000	6.8583%	@1020: 6.38%
San Miguel Corp	SMCP1	12/8/10	to be redeemed		8.0000%	to be redeemed
San Miguel Corp	SMC2A	9/28/12	9/28/15	75	7.5000%	@76.2: 5.807% in 1 yr
San Miguel Corp	SMC2B	9/28/12	9/28/17	75	7.6250%	@78.5: 5.883% for 3 yrs; 6.502% for 5
San Miguel Corp	SMC2C	9/28/12	9/28/19	75	8.0000%	@81.5: 4.828% for 3 yrs; 5.946% for 5
San Miguel Purefoods	PFP	3/11/11	3/11/14	1000	8.0000%	to be redeemed
San Miguel Purefoods	PFP2	3/12/15	3/12/18	1000	5.6569%	to be issued

Rant:

My Preferred stock investment was placed through BPITrade. It's hard to keep track of dividend payouts since BPI Trade does not notify me through email for any incoming dividends or at least give out an e-receipt. History of transactions is also limited. Based on my experience, COL Financial and Philstocks (Accord Capital) provide these things; thus, are more reliable when it comes to keeping your preferred share investments. Not to mention, BPI Trade's customer service/support is the worst.

Risk:

Liquidity - Preferred shares may not be as liquid as common shares which is significant if you would want to sell. It may take time before a buyer would match your desired offer price.
Default - A bit better than Common since Preferred shareholders has a higher priority of payment. Still, it is best to invest on companies that are less likely to go bankrupt.

Monday, October 6, 2014

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.

Sunday, August 31, 2014

MSCI August QIR 2014: Effect on Total Turnover Value of the Philippine Market

I didn't monitor much of foreign fund flows until now. The Philippine market being relatively small and illiquid can easily be swayed by the entrance and exit of foreign money. Regardless of companies having solid fundamentals and being undervalued, if foreign investors decided to get out of our market, surely stock prices will be pulled down by the large selling of these monstrous funds.

"MSCI Rebalancing" has already been a buzzword with local investors. Certain stocks move as based on the increase/decrease of its weight, more so with the case of inclusion/exclusion as a constituent of an MSCI index.

The announcement (w/c includes the list of concerned stocks) has been announced early August; however, the actual Rebalancing happened on August 29. Take a look on the Total Turnover Value of the Philippine market during that time.

Philippine Market Activity
c/o www.investagrams.com

More importantly, it is good to note that Foreign buying is still dominant, which means market rise as shown through the PSE index is still being supported at this point.

Sunday, August 11, 2013

Spotlight: Vantage Equities, Inc

Business Overview

The company was originally organized for oil and gas exploration in 1992 under the name iVantage Corporation. By October 2000, the primary purpose of the firm has been changed to financial holdings and investments, including but not limited to IT companies and related ventures.

In June 2006, the Corporation divested its shareholdings in International Exchange Bank, its single largest investment at that time. The iBank sale generated Php2.9B. The Corporation decided to invest its Php2.9B war chest in portfolio of equity and fixed income securities. For this purpose, the Company hired its current President in October 2006 along with a team of finance professionals. The current team is also tasked to further professionalize management of the Vantage Group of Companies.