June - July 2012

This may serve as my June and July update since I have been busy at work lately and I don't think I can religiously update this blog regularly (at least bi-monthly).  It is unfortunate that I got busy the same time when the market has corrected, and that I can no longer keep up with the daily monitoring that I got used to for the last 2 years.

ScIoN Fund (mid-long term)

YTD:  +4.28%

Benchmark: +18.5%

The start of the year was great since I was able to outperform the index; however, during the correction last May, I realized that my stops were too low (100 MA) as my paper profits went back to almost zero.    PSE market is still quite shaky these days as I am trying to re-enter.  My portfolio above shows a lot of entries because most of them are test buys.  Only FGEN and CMT seem to show a continuity on its uptrend.

Currently, my portfolio is clearly underperforming; I hope, I can manage to steer it back to beat the benchmark.  Still, the good thing is it is still on the positive.

AJC Fund (short term fund)

YTD (3 months):  -2.59%

Benchmark: -0.70%

AJC Fund is still on the negative although the gap from the benchmark is closer (< 3%) now  than what was last reported (~ 5%).  Both portfolios suffered from the inclusion of Lepanto which backfired when the Mining EO signed by PNoy still gave uncertainty to the mining sector.  

PSE Index Weekly

Looking at the PSEi weekly chart, seems like it is on a positive channel uptrend.  However, note the divergence as revealed in the MACD.  This may indicate that the uptrend is not sustainable; we can expect further consolidation in the future.  Seems like our market will trade at a range for the meantime. Next month would be the so-called ghost month, so it is possible that we may experience further selldowns.  Might be best to stay at the sidelines for now.

Spotlight: GMA Network Inc (GMA7)

Business Overview:

GMA Network, Inc. is a free-to-air broadcasting company principally engaged in television and radio broadcasting, the production of programs for domestic and international audiences, and other related businesses. The Company derives the majority of its revenues from advertising related to television broadcasting.

In 2011, GMA Network, Inc. grabbed and maintained leadership in nationwide TV ratings.  GMA Network garnered a nationwide average household audience share of 34.2%, up by 3.1 percentage points over its nearest competitor. GMA likewise maintained its TV ratings dominance in its traditional bailiwick areas of Mega Manila and Urban Luzon in 2011. The Network, its programs and personalities also reaped various local and international awards within the year. (source: AR2011)

Some notable subsidiaries:

GMA News Media, Inc (100%) - Converging Technology

Citynet Network Marketing and Productions, Inc (100%) - Television entertainment production

GMA Network Films (100%) - Film production (i.e. Temptation Island, The Road, Panday 2, etc.)

GMA Records (100%) - Music recording, publishing and video distribution

Affiliates

INQ7 Interactive, Inc (50%) - partnership with Inquirer.  INQ7 ceased operations in 2007.  

Philippine Entertainment Portal, Inc (PEP) (50%) - www.pep.ph , indirect ownership via GNMI.

X-Play Online Games, Inc (50%) - partnership between IPVG and GMA News Media for online gaming business.  **Asset Held for a sale

Mont-Aire Realty and Development Corp. (49%) - Real Estate holding company  **subject to sale

Cash Dividend Policy: 

Minimum 50% of prior year's net income (subject to approval of the Board, in consideration of factors in the implementation of business plans).

Net income attributable to Preferred shareholders is 30% of prior year's net income. (historical)  Participating preferred gets 1/5 of the dividend paid to common shareholders.  Convertible to common with a 5:1 ratio.

Top 3 major individual stockholders 

In the 1974, when former President Ferdinand Marcos declared Martial Law and banned foreigners from owning media outlets, Stewart and the American Broadcasting Company were forced to cede their shares to the triumvirate of Gilberto Duavit, Sr., Menardo Jimenez and Felipe Gozon. (source: wikipilipinas)

1.) Felipe Gozon - Chairman and CEO since 2000
2.) Gilberto Duavit Jr. - President and COO
3.) Menardo Jimenez - former President and CEO of GMA7 until giving up the position to his brother-in-law, Felipe Gozon in 2000.  A director of Unicapital, Inc, among all other businesses.

(L-R: Felipe Gozon, Gilberto Duavit Jr)

Quick Numbers:

Fundamentals

Book Value of Equity (AR 2011): ~Php9.8B

Outstanding Shares: ~3.36B
Preferred Shares: 7.5B

BV/share: Php 2.92


Debt Ratio (Long term): 0%
Beta: 0.71
Cost of Capital: 9.7%


Net Income:                 Dividends:
2011:  Php1.72B          2.19B
2010: Php 2.82B          3.4B
2009: Php 2.82B          1.69B


Assuming conservative growth, fair value for the company based on earnings (DCF analysis) would be around:


Fair Value/share: Php12.68


As of 5/4/12, GMA7 closed at 10.06.  Rumors has it that Manny Pangilinan is interested to buy GMA7, to add on his media war chest.   Considering our estimated fair value of 12.68, we still have a potential upside of  +26%.

Risk of Dilution

Due to recent news on MVP's interest on GMA7, there is a risk of dilution when all preferred shares are to be converted into common shares, further diluting ownership on the firm.  7.5B preferred shares translates to 1.5B common shares.  With this assumption, fair value may go down to just 8.77 per share.
Another point of concern is the issuance of dividends which have been greater than net income.
===========================

Technicals:

After a very long consolidation, trading on a tight range for more than 3 years, GMA7 picked up investors' interest at the start of the year, probably on rumors of a buyout from MVP.  Major resistance can be seen at 10 as prices corrected back down on April.  News on the talks gave rise to the stock at the end of the month, making a bullish move which led to a piercing of the resistance line.


A zero cross on the MACD chart supported by more than the average trading volume tells us that the uptrend may still continue further.  Perhaps further consolidation may be observed, which can be supported at the 10.0 line.

PD:  I have positioned myself, buying shares at 10.  Given a favorable valuation based on its earnings, this can be a conviction buy for me.  However, there may still be risks involved such as a possible private placement by MVP, or a dilution of shares when all preferred shares would be converted into commons (~1.5B new common shares).

-------
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.