Stock thoughts: COAT, PNB

COAT

Possible catalyst for COAT? 🙂

http://www.bworldonline.com/content.php?section=TopStory&title=5%-biodiesel-blend-targeted-this-year&id=64582

More on COAT here:

https://fundamentalenthusiast.wordpress.com/2012/09/05/chemrez-technologies-inc-pse-coat/

 

PNB

PNB-ABC merger is done with this disclosure! 🙂

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0630_ABC.pdf

Details are in this disclosure:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0651_PNB.pdf

Merger will be effective on February 1 or such date as may be agreed by PNB and ABC. (Article 1.2 of Amended Plan of Merger)

Understand the financial impact of the merger in the books of PNB here:

https://fundamentalenthusiast.wordpress.com/2012/09/24/making-sense-on-pnb-abc-merger/

In my opinion, the best way to value PNB is through a liquidation-concern or book value multiple.

 

Read this article:

http://www.bworldonline.com/content.php?section=Finance&title=PNB-targets-15%-RoE&id=64540

They are planning to close the branches that are near with each other which means we can expect sale of assets by PNB to contribute in generating the 15% ROE for 2013. PNB’s ROE target is very achievable.

Speculating on Chemrez Technologies, Inc.’s Buy-Back Program

Chemrez Technologies, Inc. (PSE: COAT) disclosed a P500 million share buy-back program on August 22, 2007 representing 9% of the current market price at that time and bought back 75,966,000 shares until 2008 spending a total of P 215 million. They never bought additional shares ever since until August 14, 2012 where the Company disclosed a re-confirmation of their intention to buy-back their own shares. [1] Since that date, COAT has already bought a total of 2.2 million shares spending approximately P6.4 million.

COAT initially intends to buy 9% of its own shares or 125 million shares. Currently, COAT already bought a total of 78 million of its own shares which means that the Company still has to buy 47 million more. The Company still has P277 million left of the budgeted P500 million. Should they push through with their buy-back program, it would mean that the company is willing to pay P5.83/sh (P277m/ 47m sh).

COAT has enough cash to complete the buy-back program:

Pros in the speculation:

  1. Scarcity of COAT shares may force the Company to buy up.
  2. They may buy up COAT to increase shareholder value.
  3. Buy-back program may be part of D&L’s strategy to increase their interest in COAT to above 50%. Currently, D&L only has 19.03% on COAT. D&L may use the IPO proceeds to invest in COAT since it is stated in their prospectus that they intend to use part of the proceeds for “acquisitions and investment”. Should D&L buy COAT @ 5.83 per share, it would only take P2.4 billion to acquire 30% of the shares which is only half of the projected proceeds of P5.6 billion.

Risks in the speculation:

  1. COAT may not push through of the buy-back program despite they are awash with cash.
  2. There may be enough sellers for them to accumulate 47 million shares to complete the buy-back program.
  3. There may be enough sellers at a lower price for D&L to acquire 30% of COAT shares in the market.
  4. D&L may not intend to acquire an additional 30% of COAT. Until it is disclosed that the “acquisitions and investment” use of proceeds is really intended for COAT we can never be certain.

 

Source:

  1. Boar re-confirmation of authority to engage in share buy-back program, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6064_COAT.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell.

Chemrez Technologies, Inc. (PSE: COAT)

Business Profile

Chemrez Technologies, Inc. (COAT, the Company) was incorporated on June 1, 1989 under the name Corro-coat, Inc. It was listed in the Philippine stock exchange on December 8, 2000. In 2006, COAT ventured in biodiesel production by acquiring its resin producer affiliate Chemrez, Inc and changed its name from Corro-coat, Inc. to Chemrez Technologies, Inc.

The Company derives its revenues from its two principal segment oleochemical and resin & powder coatings.

Oleochemical Segment

Oleochemical or agricultural based products is mainly composed of biodiesel. The company claims to supply approximately 20% of the total biodiesel requirement of the country in 2011. Other oleochemical products of the Company include glycerine and other methyl ester (CME) derivatives which are used mainly as foaming agents for soaps and detergents and are sold primarily in the export markets. Exports comprised 17% of the total revenues of 2011.

Resins & Powder Coating Segment

Powder coatings are protective materials applied to metal and other surfaces through an electrostatic coating process to provide resistance against heat, weather and UV light, and certain chemicals. It is used in home appliances, metal furniture, fixtures and fittings, mechanical parts, tools and equipment and also in the construction industry.

Resin includes polystyrene resins for the plastics industry, polymer emulsions for the paint industry, and polyester resins for the construction, shipping, and furniture industries.

Comments:

In the Company’s March 31, 2012 quarterly report, their oleochemical segment suffered a 30% decrease in revenue sales or 470 million decrease as compared to the same quarter last year due to increased competition in biodiesel. However, resin and powder coating sales increased by a total peso figure of 24 million.

A notable attribute of the Company is its conservative management of capital. They prefer to fund capital expenditure using internally generated funds while they tap short term loans to fund their working capital requirements. As a result, they have a balance sheet with no long-term debt and very manageable debt.