Aboitiz Power Case Analysis

How many people have you heard that said: “I wish I could have bought AP way back 2007 at P6”?

AP1

Instead of wishing something that will never happen (i.e. turning back time), let’s examine why AP increase from P6 to P35 and moved sideways from thereon so that through this analysis we will learn something that we can apply for future stock purchases.

The breakdown of our problem is:

  1. Why AP increased from P6 to P35 in 2007 to 2010?
  2. Why AP price moved sideways from thereon?

Why AP Increased From P6 to P35 in 2007 to 2010 and Traded Sideways Thereon?

In order to answer the problems, much insight can be derived from the following relationships:

AP2 AP3 AP4

Based on the charts presented above, the following can be observed:

  1. Capacity of AP’s power generation increased before price jumped from below P10 to P30’s level.
  2. The substantial increase in generation capacity was only reflected in the revenues of AP in 2010 thus the spike in the price in 2010.
  3. AP’s stock price is driven by the increase in revenues and EPS.
  4. The stock price moved sideways as generation capacity growth slowed down.

Power capacity drives the revenues of AP. Revenue growth in effect drives the EPS of AP. The increase of EPS places AP at an attractive valuation.

AP5

Therefore, power capacity is the foundation of AP’s value (and to other power generation companies).

Warren Buffett loves a company with good economic moat and a good management. Economic moat is the barrier for entry of competitors. The power generation industry has a natural barrier for entry of being capital intensive and the 3-year lead time before the completion of a power plant construction. The power shortage in the Philippines assured AP that the electricity capacity that it produces have ready buyers. Combined that with a management that can deliver what it promised, AP delivered a lot of shareholder value to its investors.

 

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.

Disclosure: No position

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Extension Requests, Stock thoughts: TA, AP, SMC

Extension Requests

It is weird to see a lot of companies requesting for the extension to file their SEC 17-A form (2012 financial statements).

Just saying. 🙂

 

TA

I hope this disclosure would be enough to erase your doubts regarding BHP’s intention to drill on August 2013:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3003_TA.pdf

SLTEC construction will start in the 2nd half of this year:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2978_TA.pdf

Good thing TA has a lot of cash:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-2987_TA.pdf

I will post the nature of Service Contracts (SC) and Mineral Production Sharing Agreements (MPSA) soon.

Last year TA declared share rights offering (SRO) in August, my wish is that they will do the same in August but match it with property dividend declaration so that they can peg the SRO at higher price.

Just a wish.

 

AP

AP’s power barge charges at lower rate:

http://www.interaksyon.com/business/59423/aboitiz-power-barge-unit-trims-rates-to-2-year-low

With lower oil, AP has lower cost of producing electricity which also means lower power rates for Mindanao. Not a bad news, a win-win for both parties. 🙂

 

SMC

SMC bag NAIA express way project:

http://www.interaksyon.com/business/59473/san-miguel-bags-naia-expressway-project

Actually, I am worried on how SMC can finance this project. More debt and equity issuance perhaps?

Will look more on SMC.