Mike Ferrer, Stock Thoughts: PRC, AGI

Mike Ferrer

One reason to subscribe in Business World’s free business dailies are the quality columns written by Mike Ferrer every Monday.

Read his column on January 14, 2013: “The Long and Short of it”

http://www.bworldonline.com/assets/subscribe.php?id_subs=digit

 

PRC

Leisure Management (Hong Kong) Limited is selling plenty of PRC shares:

http://www.pse.com.ph/resource/corpt/2013/PRC_23B_01142013.pdf

http://www.pse.com.ph/resource/corpt/2013/PRC_23B_01142013_1.pdf

 

AGI

Interesting business development for AGI:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0396_AGI.pdf

AGI’s cash cow has always been their Emperador Distillers, Inc. subsidiary.

 

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Stock Market, Stock Thoughts: GREEN, PRC

Stock Market

Yehey! Wohoo!:)

http://www.interaksyon.com/business/52107/psei-breaches-6000-mark

GREEN

I still believe that price action for GREEN will be in the 1H of this year. They have no choice; they have investment commitments to fulfil.  🙂

PRC

Anybody who is willing to bet for PHES because of the Ayala’s entering in a joint venture with them is better off buying PRC.

Aggressive buybacks and management has an incentive if they present higher earnings.

More here:

https://fundamentalenthusiast.wordpress.com/2012/08/08/case-study-prc/

 

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

 

Case Study – PRC

Let’s improve our learning experience in this thread by taking real life examples.

Case Study – PRC

PHES’s stock price had been soaring in these past few months due to the possible joint venture with Ayala. Ayala is said to invest in PHES’s 60 hectare plastic city estate in Valenzuela City. A company that has a similar story would be PRC.

Philippine Racing Club, Inc. (the Company, PRC), operates a horse racing franchise.  Under the franchise, PRC may take or arrange bets for races conducted in or outside the Philippines.  Currently, the betting operation of the Company is being expanded by the addition of more Off-Track Betting stations (OTBs). The Company’s source of revenue is the 8.5% share in the gross receipts of the betting tickets.

PRC was the largest racing club in the Philippines when it was organized in 1937. The whole racetrack property was located in a 21.6 ha. land in Makati City. On December 21, 2008, the last official horseracing was conducted and starting January 6, 2009, horseracing was conducted in the new racetrack complex in Naic, Cavite.

On February 25, 2011, the Company disclosed that they executed a master development agreement (MDA) with ALI where the company will contribute its 21 ha land in Makati for a mixed-use real estate development. The agreement provides that PRC will have 18% share of the saleable units.

In October 2011, ALI purchased 2.96 ha. of land within the Makati property in compliance with the terms and conditions of the MDA. The selling price of the land sold was not disclosed but on its SEC 17-A filings in 2011, ALI advanced P554.5 million to PRC representing 24% of the agreed price or an implied selling price of P2.3 billion. Currently, no revenue regarding the transaction was recognized by the Company but the cash proceeds given by ALI are lodged as “advances from customer.”

The accounting treatment of the sale of land by PRC might serve as a market surprise as soon as PRC recognizes the transaction as revenue. The effect of the revenue recognition will be a sudden increase in the top line of P 2.3 billion. The cost of the whole 21 ha land was recorded at only P81 million. Assuming that the cost of the 2.96 ha land including cost to prepare it for sale is 50 million, possible increase in the profit of PRC will be 2.25 billion.

Management motivation might be present to recognize the revenues in 2012 as their by-laws stipulate that management bonus shall be 10% of annual income before tax. Also worth noting are the buy-back transactions made by the company since the approval by the Board of the buy-back program on April 17, 2012. The total shares bought back by the company are 5,070,500 shares at 9.50.

The downsides are:
1.   The gain to be recognized is one time only.
2.   There is a probability that the 2.3 billion revenue will not be recognized in 2012.

Let’s wait and see how the market will react as soon as the company presents the information above in their financial statements.

Disclosure: No position in any stock mentioned.