Same Metrics, Differing Views

A fellow kabayan asked where I got the terms of the JV of the PHES. Also, at a P/E ratio of 10 it would only take 4

years to sell all the Valenzuela property,thus using P/E ratio of 10 is wrong.

http://www.flickr.com/photos/54028939@N00/1226982752

First, I would like thank you Renzie for your comments and inquiries. It helps a lot to learn from others also. Life’s like that. You give something and you’ll receive something too. It’s a law. A natural law. At the end of the day, we are all here to profit, share our experiences and hopefully have done our part in making our world a better place to live in.

A while ago my colleague and I were discussing our own personal situations and investments ideas. I told him that I was ‘lucky’ in stock market because I was able to profit in some stocks. He said,” Yeah, you have said the correct word lucky”. This connotation implies that in stock market, you either pick the right stocks or wrong stocks. The stock you think will go up ends up moving flat or downwards, in other times, it abruptly go up leaving you wondering what kind of drugs the market is taking.

If you read the news before the start of October, some analysts are saying that the Index might move downwards. True to its nature of unpredictability, the Index hit an intraday high a couple of days ago. Just when the Index moves up and hit the intraday high, some analysts expected the Index to be positive but it moves in the opposite direction.

Stock market is not an absolute science. If you check the numbers, forecasts, and assumptions of the analysts, you will see different numbers. Their forecasts never matched. Nevertheless, most of them use the same metrics in valuing a company. The value of the company depends on the perspective of the market. For example ALI is being valued with P/E ratio of more than 30 times, while the rest of the real estate companies are being valued less than that.

I’m a fan of Peter Lynch, the former fund manager of Fidelity Magellan. I read in one of his books that once a turnaround company, or a speculative company turns into a profitable company, it has to be gauged using the metrics being used for other profitable companies. In this case IF PHES JV with ALI is signed; it needs to be gauged with profitable real estate companies.

We just bought a pre- selling condo last year. We will pay the down payment for three years and once the property is turnover, we need to pay the balance. In effect, the real estate developer is getting the full selling price of the condo upon turnover, and that is in three years time.

There also other real estate developers who allows in-house financing. The buyer will not resort to the bank to pay the balance upon turnover but it will be the real estate developer who will shoulder the financing side of the purchase. If PHES and JV scheme will be like this, then the profit from this venture will be extended on the terms of the in-house financing which is normally ten to twenty years.

There is no disclosure yet on the terms of JV. All the numbers that you can see around are all assumptions (mine included) in valuing the company. Once the numbers are out through disclosure, we can have a fair assessment on the profit of PHES from the JV and how long it will take.

This is only my opinion and my basis for valuing may be wrong and other investors may have a different view of this company which I fully respect.