Love 24/7, Stock update: GREEN, LPZ

I watched Love 24/7 this weekend. Love 24/7 is an interview of different people about what they will do if the world ends. The movie then concluded that all that matters is love. That if the world ends, it would always be the time spent for your loved ones that will matter.

Agree?

I STRONGLY AGREE! If the world ends, we should forget our stocks and just be with our closest and wait for the world to explode. If the world ends, all the assets in the world that has the capacity to generate future cash inflows will not matter because there will be NO FUTURE for all of us.

BUT the world will not end. The world will keep on changing and we need to work to put food on our table tomorrow and in the years to come. Love is important but it is not the only thing that matters. Balance is important.

In investing, most investors see book value (BV) as the company’s intrinsic value. Seeing a company’s value through its BV is viewing the company DEAD. A company that is dead has NO FUTURE. There is no need of using the Price to Earnings Ratio (PER) in valuation since the company will be dead anyway.

A company that is alive grows its book value.

Example:

JFC’s BV in 2008 @ 14, in 2011 @ 19

JGS’BV in 2008 @ 11, in 2011 @ 21

To illustrate, if company A has a book value of P1 today and currently selling at P2, is it undervalued or overvalued?

If you view it dead, it is overvalued.

What if I say that Company A is projected to grow its book value to P5 in 5 years? is it over or undervalued at P2?

Probably you’ll think twice whether it is under- or overvalued. You’ll have to consider PER and all other financial tools.

BV is important but it is not the only metric that matters. Balance in considering other financial tools is important.

LPZ

Courtesy of Zepol, check this out:

http://manilastandardtoday.com/2012/12/10/globe-bayantel-tender-offer-98-complete/

In the last paragraph:

“In the event that the debt offers are completed, Globe intends to apply with the rehabilitation court to amend the terms of the rehabilitation plan in the interest of assuring Bayan’s long-term sustainability. Globe expects that the debt will remain subject to the jurisdiction of the rehabilitation court after the completion of the debt offers,” Globe assistant corporate secretary Marisalve Ciocson-Co said earlier.

What could the amendments be?

Below is my thought flow chart for LPZ:

ST01

GREEN

I will be waiting for a PSE disclosure regarding the result of special stockholders meeting on December 11 or December 12. Trading halt probably? ahahaha wishful thinking.

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Selected stock updates: MER, PRC, AGI, GREEN

MER

This morning, news came out that MER’s credit rating was upgraded by S&P to B+ from BB-.

http://www.bworldonline.com/content.php?section=Corporate&title=S&P-gives-Meralco-higher-credit-grade&id=62110

As a result, MER’s price went up by 3.53%.

My take, MER is undervalued even at current prices. Franchise alone is worth P380/share (See comments section of MER stock report). IMHO, a P300 price before year end is very possible.

Short term investment strategy: Buy and hold until the Open Access and Retail Competition (OARC) which is on the second half of 2013.

Long term investment strategy: Hold 5 – 16 years.

 

PRC

Just as I thought there are no more sellers in PRC, ATR came out with so much more shares. Anybody have an idea when ATR will exhaust all his shares?

 

AGI

AGI confirms their intention to spend $1.5 billion for Resorts World.

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8586_AGI.pdf

Good news! With the following assumptions:

Return on Assets (ROA) = 5%

Outstanding shares = 10 billion

Forex rate = P 40

The estimated 1.48 increment in its intrinsic value depends on when and how AGI will spend the $1.5 b capex.

 

GREEN

 No news or disclosure except that it’s down 11% from my initial entry.lol

 

Live Case Study: GREEN

Greenergy Holdings, Inc. (GREEN, the Company) has wonderful business developments that are potentially capable of bringing substantial future cash flow for the Company. The recent approval of feed-in tariff rates by the Energy Regulatory Commission (ERC) lowers the riskiness of renewable energy businesses in the future. [1] Feed-in tariff rates are fixed rates payable to renewable energy producers for not less than 12 years. Also, renewable energy producers will have priority purchase and transmission which assures the sale of their produced electricity. [2]

GREEN’s disclosure on November 16, 2012 contains the following: [3]

  1. Investment in companies or acquisition of assets relating to the businesses of Mr. Antonio L. Tiu.
  2. Amendments of the Company’s Articles of Incorporation and By-Laws to effect the following changes:
    1. Change in corporate name
    2. Increase in authorized capital stock up to P10 billion
    3. Issuance of shares through private placement transaction.

     

GREEN is in need of capital for their renewable projects. The Company has a short-term investment commitment of P252 million for the biomass project with Cleantech. [4] GREEN managed to meet the 45-day deadline of the required capital infusion by issuing new 25.2 billion shares and had 25% of the increase in shares issued to investors as private placement. For those new in corporate law, an increase in shares is required to be 25% subscribed and at least 25% of the subscribed be fully paid.

As illustrated above, GREEN still has to raise P167 million (P252m – P85m) in order to comply with commitment with Cleantech.

Other than commitment with Cleantech, GREEN has another upcoming capital intensive projects that are not yet fully funded which are the hydropower projects, currently under a preliminary agreement with Hydroring Capital BV (HC) and subject to financial and technical feasibility. The joint venture agreement is scheduled to be signed until January 13, 2013. [5]

With GREEN’s business development, it could be expected that GREEN will raise capital through the market in the near future but not before increasing shareholder value.

It could then be expected that GREEN may do the following:

  1. Change in corporate name.
  2. Increase in authorized capital stock to P10 billion.
  3. Acquisition of companies owned by Mr. Antonio Tiu through issuance of shares.
  4. Declare as property dividend their 39% interest in Music Semiconductors Philippines, Inc. (MSPI).
  5. Declaration of follow-on offering.

Rationale of the expectations:

  1. The change in name will properly reflect GREEN’s new businesses.
  2. Increase in authorized capital stock will provide GREEN more shares for issuance.
  3. Issuance of GREEN shares to acquire businesses relating to Mr. Antonio L. Tiu will allow GREEN to obtain control without any cash outlay. The issuance of shares will potentially wipe out the deficit of GREEN which stands at 284 million as of September 2012 and increase the assets of GREEN making it more attractive for investors.
  4. Distribution of MSPI shares as property dividend will increase shareholder value.**
  5. The follow-on offering will enable GREEN to raise the much needed cash.

GREEN’s par value could reasonably be expected to be increased from its current P.01 since an authorized capital stock of P10 billion at P.01 par value will translate to 1 trillion shares. There are no regulatory limitations for the number of authorized shares for issuance but 1 trillion shares for issuance sounds awkward in my opinion.

** This expectation was supported in the recent definitive information statement of the company where GREEN includes in the agenda for December 11, 2012 stockholders meeting their intention to list MSPI. [6]Listing of MSPI will most likely be through “listing by way of introduction” which requires distributing the shares to the public through property dividend just as PX and MER did with PXP and ROCK respectively.

Sources:

  1. ERC Approves Feed-in Tariff rates, http://www.erc.gov.ph/PressRelease/ViewPressRelease/ERC-Approves-Feed-in-tariff-rates
  2. RA 9513, http://www.doe.gov.ph/Laws%20and%20Issuances/RA%209513.pdf
  3. Board approval of investment or acquisition of assets, amendments to Articles of Incorporation and By-Laws, issuance of shares through private placement; Lifting of trading suspension, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8302_GREEN.pdf
  4. Comprehensive Corporate Disclosure re: Investment Agreement with Cleantech; Trading halt, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6341_GREEN.pdf
  5. Preliminary agreement with Hydroring Capital BV re: development operation and management of multiple hydropower projects, infrastructures and/or facilities in the Philippines, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6703_GREEN.pdf
  6. Definitive Information Statement for Annual Stockholder’ Meeting on December 11, 2012, record date November 16, 2012, http://www.pse.com.ph/resource/corpt/2012/GREEN_D20IS_11202012.pdf

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

Greenergy Holdings, Inc. (PSE: GREEN)

Greenergy Holdings, Inc. (GREEN, the Company) has its interests in waste management and renewable energy. Currently, GREEN has the following business structure:

MSPI is engaged in development, sales, marketing and logistics of semiconductors products. On August 1, 2011, the SEC approved the increase in authorized capital stock of MSPI but GREEN waived its right to exercise pre-emptive rights in MSPI effectively decreasing their interest down to 39% from 100%.

TWMRSI is engaged in the business of building, operating and managing waste recovery facilities and waste management system within the Philippines. As of September 2012, the Company had already advanced P235 million to TWMRSI in the form of future stock subscription, in other words, it is a cash advance that can be converted to equity. The 235 million cash was used to construct waste recycling facilities (construction in progress). TWMRSI is not yet in commercial operations.

WINSUN was incorporated on June 22, 2012 to engage in renewable energy projects. WINSUN is not yet in commercial operations.

On November 6, 2012, Biomas Holdings, Inc. was incorporated pursuant to the Company’s investment agreement with Cleantech Projektgesellschaft MBH (Cleantech),an infrastructure fund managed by ThomasLloyd Global Asset Management.[1] Cleantech will infuse P425,537,300 cash for 20,776,856,000 shares of GREEN and will be issued the following warrants:[2]

  1. 10,489,500,000 shares at a strike price of P0.02 with 1 year expiry from the issuance.
  2. 10,489,500,000 shares at a strike price of P0.03 with 3 year expiry from the issuance.

The Company on its part shall separately raise fresh capital amounting to P252 million. On October 31, 2012, private placement investors subscribed to GREEN shares amounting to P252 million.


Other Significant Business Development

On August 31, 2011, Memorandum of Agreement (MOA) was executed with Tianjin Tianbo Investment and Development Corporation (TTIDC) for the development of 1,000 MW wind energy project with an estimated investment of at least $1.3 billion within a 10-year period. [3] On March 13, 2012, TTIDC assigned to its affiliate China Power (Tianjin) New Energy Development Co. Ltd. its rights and obligation under the MOA.

On September 14, 2012, GREEN entered into a preliminary agreement with Hydroring Capital BV (“HC”) for the development, operation and management of multiple hydropower projects using the Hydroring concept. The project is subject to financial and technical feasibility and due diligence and the execution of definitive statements. The signing of joint venture agreement is scheduled within 121 days from date of signing of the preliminary agreement or until January 13, 2013.

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