Selected Stock Updates: CEB, FGEN, and LPZ

CEB

CEB reached its conservative valuation of 63.

My projection for CEB’s 2012 earnings is at 6.27 which translates to 62.70 should it be valued at 10x PE ratio. PAL is the only comparable publicly listed airline company in PSE so we could not determine on what multiple should CEB trade. Conservative investors may stick to 10x PE ratio while risk takers can gamble for a 15x PE ratio.

FGEN

I like FGEN. This is a stock that I consider to be the most conservative. Conservative because buying this stock is like seeing the future. Earnings are very predictable and immune to economic recession. A stock I can comfortably buy even at 23.50.:)

I failed to add this in my own portfolio though. The reason is that I was in CHIB when FGEN’s major business developments happened. Although FGEN’s earnings are predictable, CHIB’s short term capital gains are much more predictable (at that time).

On hindsight I should have bought FGEN!lol

Read about FGEN here.

LPZ

A stock I bought for speculation.:)

Recent hint on what GLO would do is disclosed here:

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8566_GLO.pdf

Part of the news that alarmed me was the portion where the debt is convertible to equity! If that would be true then LPZ valuation will fall at the lowest end of our valuation model (6.51).

Of course, I’ve done my due diligence and the financial obligations that GLO are buying are NOT* convertible to equity!

*I hope I did not miss such an important fact!

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Selected Updates: LPZ, PCOR

LPZ

Tnder offer for BTI’s obligations is extended until nov. 27, probably New York time.
http://business.inquirer.net/94329/globe-telecom-extends-offer-period-for-bayan-debt

For starters, GLO’s tender offer pertains to the $200 million  notes (Notes) of Bayan Telecommunications, Inc (BTI) and BTI’s wholly owned subsidiary, Radio Communications of the Philippines, Inc. (RCPI). The tender offer shall be valid if at least 70% of the remaining principal amount of the Notes is tendered and 70% of the principal amount of RCPI debt is tendered. As of yesterday, BTI claimholders already tendered 82% but RCPI claimholders tendered only 64% or 6% short in order for the tender offer be valid.

In my humble opinion, the likelihood of the tender offer to be successful is high.:)

PCOR

I am modifying my holding period for PCOR to until 2014. Bataaan expansion will be completed by 2014 and so as the 216 MW cogeneration power plant (PCOR’s business development that attracted me most).

Globe Telecom, Inc. – Lopez Holdings Corporation

Globe Telecom, Inc. (PSE: GLO) disclosed in November 6, 2012 their intention to acquire 100% of the $200 million  notes (Notes) of Bayan Telecommunications, Inc (BTI) and BTI’s wholly owned subsidiary, Radio Communications of the Philippines, Inc. (RCPI) for $280~$310 for every $1,000 on or before 5:00 PM, New York City time,  November 19, 2012. [1]

The consideration that GLO will pay depends on the acceptance level:

  1. $280, if the acceptance level is less than 75%
  2. $290, if the acceptance level is greater than 75% but less than 80%
  3. $300, is the acceptance level is equal to or greater than 80% but less than 85%
  4. $310, if the acceptance level is equal to or greater than 85%

The tender offer shall be valid if at least 70% of the remaining principal amount of the Notes is tendered and 70% of the principal amount of RCPI debt is tendered. As of the date of the disclosure, approximately 45.4% of the Notes and 79.1% of RCPI debt already agreed to tender their claims.

Assuming that conditions for a valid tender offer are met and GLO is able to pay the highest consideration for the debt, GLO will pay a total of P2.6 billion @ P42/$ exchange rate. [2] GLO’s intention to be the largest creditor signals their intent to acquire BTI.

A Scenario Where GLO Will Buy BTI

Currently Philippine Long Distance Telephone Company (PSE: TEL) is trading at 3.60x price to revenue per share multiple. BTI has revenue of 4.7 billion as of 2011. Assuming the same multiple as TEL, BTI’s fair value should be 17.64 billion (4.9 billion x 3.60x). BTI has a negative book value of 17 billion. Negative BV happens when liabilities exceeds total assets.

The effect of one time gain in a per share basis at a range of consideration is as follows:

LPZ’s fair value range assuming .55x price to book ratio multiple:

Comments:

I believe that GLO will eventually initiate an equity position in BTI. BTI has total long term debt of P14 billion but it is a company with 4 billion annual revenues and generates P2 billion cash from operations with minimal capital maintenance of 700 million. It has the majority interest (85%) in National Digital Transmission Network (NDTN) a major alternative communications backbone, the other being operated by TEL. A communications backbone is a larger transmission line that carries data gathered from smaller lines. NDTN stretches from Santiago City, Cagayan Valley to Davao City passing through Cebu City and Cagayan de Oro City.

 Risk:

November 19, 2012, New York Time, is a crucial date. Should the tendered claims be less than 70%. The tender offer will not be valid and would render all the assumptions above unlikely in the short-term.

Source/notes:

  1. Press release: “Globe Launches Tender Offer for All Outstanding 13.5% Senior Notes Originally Due 2006 Issued by Bayan Telecommunications, Inc.”, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-7966_GLO.pdf
  2. Cash GLO may pay for the BTI’s financial obligation:
  3. PSE disclosure on Bayantel’s NDTN expansion, http://lopez-holdings.ph/~lholding/uploads/files/Blurb-62_File-98_BPCinforeBayanTelNDTNExpansion-3ProjectJan232007.pdf

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