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.

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Stock Thoughts: LPZ, GREEN, PNB, MEG

LPZ

LPZ’s stock price plunged 4% today to 6.20. There is nothing to be worried about.

The catalysts that I am waiting for are:

  1. Announcement of the successful tender offer which would probably be on or a day after Dec 21 (the settlement date).
  2.  GLO’s acquisition of BTI equity

I am interested in reading the details of what GLO would amend on the terms and condition that governs BTI’s debt.

GREEN

Today’s disclosure on GREEN:

http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-8958_GREEN.pdf

Earthright is to subscribe for P750 M worth of shares of GREEN. The P750M worth of subscription can be rationalized as:

ST1

Of the P750M worth of subscribed shares, 25% or P187.5 should be paid.

Before buying GREEN I did my due diligence by checking all the financial statements of the companies where Antonio Tiu is connected. All of them have cash not enough for them to comply with their investment commitment with Cleantech.

I will wait for more information regarding GREEN before selling.

PNB

When the news came that BPI is in talks to buy PNB, I was asked by a client what to buy: PNB or BPI?

Without hesitation I said PNB. Why? PNB’s majority shareholders are hinting their willingness to sell their interest. A company for sale will attract willing buyers. Willing buyers can offer to buy PNB at its intrinsic value.

How much is PNB’s intrinsic value? After merger with ABC, PNB can have a BV of P57.22 assuming PNB will sell similar to BDO’s price to BV multiple of 1.73 we can value PNB at P99.

We bought him PNB @ 85.

MEG

MEG is the cheapest real estate company in terms of PE ratio in the PSE. It is the cheapest and also the market leader. I guess it is bound to realize its value of 2.90.

I made my client choose what stock he wants to serve as the majority of his portfolio: CHIB, FGEN, AGI, MEG, EDC.

He chose MEG @ 2.20 for the simple reason that it has the lowest peso value. Lucky guy.

Making Sense on TDY Consolidation

On July 31, 2012, Tanduay Holdings, Inc. (TDY) disclosed the following: [1]

Lucio Tan (LT) wishes to consolidate his assets to TDY by having TDY acquire/invest in the companies above.

In order to determine the value of TDY after the consolidation of the mentioned companies, we may approach the valuation in two ways: accretion in earnings per share or book value accretion.

The consolidation of LT group’s assets in TDY shares will actually diminish TDY’s earnings but it can increase TDY’s assets to 18.75 per share.

Additional considerations:

According to a disclosure in the PSE, some of PNB’s assets require regulatory approvals which may delay TDY’s investment in the bank. [2]

TDY application for increase of authorized capital stock from 5 billion shares to 25 billion shares is approved by the SEC. Although the increase does not mean that all the 25 billion will be issued, it still suggests a possible dilution thus in effect may distort our computations above. [3]

Computation of 32%:

Sources:

  1. Change in corporate name to LT Group, Inc.; investment in companies; Special Stockholders’ Meeting on September 18, 2012; resignation/election of directors; Lifting of trading suspension, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5685_TDY.pdf
  2. Filing of application with SEC for amendments to Articles of Incorporation and By-Laws; Update on investments in companies under the Lucio Tan group, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-6959_TDY.pdf
  3. SEC approval of increase in authorized capital stock, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-7346_TDY.pdf

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

Making Sense on PNB-ABC Merger

The Philippine National Bank (PNB) and Allied Banks (ABC) merger where PNB will be the surviving entity was approved by PNB’s shareholders way back 2008. The merger did not immediately push through due to regulatory issues specifically on ABC’s 27.78% stake in Oceanic Holdings which owns Oceanic Bank Holding Inc. US Federal reserve requires ABC to divest the stake before merging with PNB.[1]

In order to expedite the merger, ABC decided to transfer their stake in Oceanic Holdings to a trust fund on October 11, 2011 to be later sold to a third party.[2] As of July 26, 2012, PDIC approved the merger and BSP on August 2, 2012. Just recently, September 9, 2012, SEC approved the merger. With ABC’s Oceanic Holding stake divested and all three regulatory bodies giving the green light, PNB-ABC merger is good to go.

Using the terms of the merger as disclosed in the Philippine Stock Exchange,[3] we can have a rough calculation of PNB’s net assets and net income per share after the merger as shown below:

The merger would cause dilution of PNB shareholders’ EPS from P5.83 to approximately P4.78 or 15% decline but will increase PNB’s book value attributable to common shareholders from P49.03 to P57.22 or 17% increase. Other business developments due to the merger transaction that is not immediately quantifiable are economies of scale, market share growth, and access to new markets.

Market share growth and access to new markets is achieved by PNB in the merger by boosting their current 344 branches to 668 branches with the inclusion of ABC’s 324 branches. This also means that PNB will be able to instantly increase their branches in a profitable geographical market such as the Metro Manila thus creating a more cohesive franchise. Economies of scale will be achieved through reduction of senior management and redundant operations functions. For the year 2011, ABC’s management received total compensation and bonuses of 808 million.

Sources:

  1. “PNB-Allied Bank merger to be completed in 2010” http://www.gmanetwork.com/news/story/178398/economy/companies/pnb-allied-bank-merger-to-be-completed-in-2010
  2. “Board approval of execution of Voting Trust Agreement re: Oceanic Bank’s shares,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-7306_PNB.pdf
  3. “Board approval of amendment of Plan of Merger with ABC, resignation/election of directors,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-8677_PNB.pdf

Disclosure: No position on any stock mentioned above.

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