Determining the Impact of P900 Sugar Price to PIP Earnings

My approach in forecasting PIP’s estimated sugar costs is fairly simple:

  1. Determine the average bags used to generate per P1 gross sales
  2. Determine the estimated number of bags and total cost

The rationale is to lean on the relationship of gross sales and bags of sugar purchased to generate per P1 revenue.

Determine the bags used to generate per P1 revenue

In determining the number of bags used, the sugar component of the Materials and Supply used account of PIP must first be estimated.PIP1

I assumed residual cost is 90% attributable to sugar to give room for other costs.

Calculating for the number of bags consumed per year is as follows:

PIP2

* change in financial period reporting

Determine the ratio of bags used per P1 gross sales generated:

PIP3

Average bag used to generate P1 revenue is .00020 bag.

Determine the estimated number of bags and total cost

Assuming no growth for PIP’s gross sales from 2012, we will have the following calculation:PIP4

Determining the financial impact of P900 sugar price

Assuming all else constant, we will have the following calculation:

PIP5

The financial impact of P900 sugar price to PIP’s financial statements is a decline of percentage of Cost of Goods Sold to Gross Sales to [22.732 million / 11.781 million] 52% from the current 62% which could increase PIP’s earnings to P3 billion.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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2 thoughts on “Determining the Impact of P900 Sugar Price to PIP Earnings

  1. Truly a great find. With current net income of P800 million, earnings will more than triple to P3 billion given the above scenario.

    Just wondering, do you happen to have an intrinsic value calculation of PIP? What would be a reasonable price target?

    Thanks!

    Reply
    • Hello,

      I usually use PE multiple of 10x in my valuation (shorthand for DCF) assuming that there is less chance that the company will experience earnings decline in the next 10 years. for PIP I set a target price of 6.19~8.80.

      Regards,

      Renzie

      Reply

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