Stock thoughts: VMC, APC, TA

VMC

Prepays debt:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3262_VMC.pdf

More on VMC:

https://fundamentalenthusiast.wordpress.com/2013/01/17/victorias-milling-company-inc-pse-vmc/

 

APC

Sy group to consolidate power assets to APC:

http://www.philstar.com/business/2013/04/22/933301/sy-group-consolidate-energy-units-one-firm

But the Company (as usual) claim to have no knowledge about it:

http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-3268_APC.pdf

To those who are interested in the company:

https://fundamentalenthusiast.wordpress.com/2013/04/22/profiling-apc-group-inc-pse-apc/

 

TA

Phinma President and Vice-Chairman prepares for the property dividend of petroleum subsidiary:

http://www.philstar.com/business/2013/04/22/933311/ta-oil-finalizes-pepc-listing

The catch is its only for SC 55.

My complete rationale of buying TA:

https://fundamentalenthusiast.wordpress.com/2013/04/22/trans-asia-purchase-rationale/

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Speculating on Trans-Asia Property Dividend

Kindly see video below before reading the rest of the post:

Trans-Asia Oil and Energy Dev’t Corp. (PSE: TA) speculation is based on Dr. Francisco Viray, Pres. and CEO, Trans-Asia Oil and Energy Dev’t Corp. statement on October 25, 2012 interview in ANC.[1] In the video TA bared their plans to spin off their subsidiary Trans-Asia Petroleum (TAP), formerly Karang Besar, and list the company by way of introduction. According to the Dr. Viray, they are planning to list the company by 2013 which is logical, in my opinion, since TA has two upcoming drilling.

Listing by way of introduction (LBI) refers to listing of shares where no public offering will be undertaken. LBI requires the company to meet any one of circumstances under the Amended Rules on Listing By Way of Introduction and the listing requirements under the Revised Listing Rules.

Listing by way of introduction may be appropriate in the following circumstances: [2]

  1. Where securities for which listing is sought are already listed or traded or will simultaneously be listed on another stock exchange or subject to approval of the Exchange, is listed on another trading market;
  2. Where the security of an unlisted issuer are distributed by way of property dividend by a listed issuer to shareholders of that listed issuer;
  3. Where a holding company is formed and its securities are issued in exchange for the securities of one or more listed issues and the listing of the listed issuer is withdrawn at the same time as the securities of the issuer are listed;
  4. Where listing of securities in an exchange is mandated by law of by the SEC, in the exercise of its powers under the Securities Regulation Code; OR
  5. Where public offering of securities is mandated by law or applicable regulations; Provided, that the applicant company secures a clearance from the relevant agency stating that such agency does not object to the listing by way of introduction of the securities of the company;

TAP will have to conform to circumstance “2” which is to declare a property dividend in order for the company to list by way of introduction. Regarding the listing criteria, TAP will be able to meet the listing criteria of the secondary board where a company shall only demonstrate superior growth potential which is inherent to an oil and exploration company.[3]

TA1

A company worth noting that took a similar path as TA is Philex Mining (PX). PX is a mining company that has 64% interest in PXP which is a company engaged in oil exploration. PX spun-off PXP by declaring it as a property dividend and listing the company in the Philippine Stock Exchange (PSE).

On May 26, 2011, PX disclosed the results of the Board of Directors Meeting where it was agreed that 1 PXP shares is entitled for a shareholder of 8 shares. [4] On that same day, on a press release, PX disclosed that they will seek SEC approval for the PXP property dividend. [5]

On July 21, 2011, PX disclosed the SEC approval of PXP property dividend. [6] On August 18, 2011, [7] PXP shares are distributed to the shareholders of PX and PXP was listed by way of introduction in the PSE with a listing price of P1.20 on September 21.

For this year, an insider of TA has been buying a lot of shares in the market:

TA2

The transactions above hints that TA shares are undervalued even at 1.80. How much exactly is the value of TA Petroleum should it be distributed to shareholders?

PXP has a listing price of 1.20 per share or a market capitalization of 2.04 billion. Assuming that TAP will command the same market capitalization we can have the following valuation:

TA3

We can reasonably assume that upon the announcement of TAP stock dividends, TA’s intrinsic value of P2.08 (projected EPS of .16 x PE ratio of 13x) should increment by 0.47 to acknowledge TAP’s value. TA’s value should be at P2.55.

TA has a board of directors who have shareholder value in mind. The company has declared cash dividends of P.04 since 2005. The Company has announced that the annual stockholder’s meeting shall be held on March 21. [8]

Numerous Catalysts for This Year

First catalyst would be possible announcement of TA Petroleum property dividend which might be before or after March 21 but not beyond the first half of this year.

Second catalyst would be the drilling of Cinco prospect in SC 55 in partnership with BHP Billiton in August.

Third catalyst would be the drilling of on-shore oil prospect in SC 51 in August.

Fourth catalyst would be the commercial operation of Maibarara geothermal power plant on the third quarter of this year.

 

RISK:

Non-occurrence of TA property dividend will substantially impair the valuation.

Source:

  1. Company Call: Trans-Asia Oil and Energy Dev’t Corp, http://www.youtube.com/watch?v=y50_ahfcjhY
  2. Article III, Section 1, Amended Rules on Listing By Way of Introduction, http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  3. Part E, Section 2, Subsection e, Article III, Revised Listing Rules (MFB 149-2004), http://www.pse.com.ph/stockMarket/listedCompaniesRules.html?tab=0
  4. Declared of dividend Composed of property and cash, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-3991_PX.pdf
  5. Press Release: “Philex Mining declares Dividend; To list Philex Petroleum shares on the Philippine Stock Exhcnage,” http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-4002_PX.pdf
  6. SEC Approval of Dividend, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-5417_PX.pdf
  7. Distribution of shares of Philex Petroleum Corporation, http://www.pse.com.ph/resource/disclosures/2011/pdf/dc2011-6197_PX.pdf
  8. Annual Stockholders’ Meeting on March 21, 2013, Record Date on February 19, 2013, http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-0619_TA.pdf

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

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.