Petron is In, Cebu Pacific is Out... of PSEi

PSE just released the latest composition of PSEi today and I learned that Cebu Pacific was booted out of PSEi while Petron was included again.
Petron is not even included in the reserve list of PSEI before which is composed of five stocks namely Lepanto Mining, Security Bank, PNB, RCBC and Atlas. These five stocks which are next in line to be included in PSEi were abruptly overtaken by Petron during the review made for the period July 2011 to June 2012.

Petron's full market capitalzation of 94 billion pesos ranks among the heavyweights. The turning point for Petron is the compliance to the 10% minimum public float which was facilitated by the sale of PCERP shares to the public.

Atlas on the other hand was removed from the reserved list and was replaced by the recently kicked out Cebu Pacific.

Cebu Pacific's price since IPO has been on a downward spiral. Its price is 125 per share on its debut listing but it is now trading in the 60s level, a 50% loss in value!

The effect of the Cebu Pacific exclusion is felt today with 4.7% loss while Petron increased by 2.18%

Will CEB's exclusion finally break the 60s barrier moving downwards? Perhaps not this week because the RSI is too low already but next week will be a new ball game and CEB might crack under selling pressure.

Will PCOR's inclusion in the PSEi finally push the price from sideways range? I think it will because some funds called Index funds are buying virtually all companies listed in the Index.

What is Emergency Fund?

Recently I met my old friend Alvin who has been plagued with problems. He’s been restless for the past weeks because of the financial constraints that he’s having. The daily expenses are piling up and he just cannot cope with it. It’s stressful and emotionally draining.

http://www.flickr.com/photos/49503168860@N01/4257136773

The financial strains help to add wrinkles in his face which are quite noticeable. Also, there is a myth that most OFWs are losing their hair but for him, it looks natural. It all started when they celebrated his son’s first birthday. Imagine that, a birthday taking him off the right financial direction!

He said he is too busy with his work and forgot that it’s his son’s birthday already. His wife suggested taking the kid and their neighbors to Jollibee and he agreed. The kids were happy once the party started while he foots the bill.

After a week, the credit card and electricity bill arrived. He frowned upon looking at the figures of the bill. He realized that he needs to cover the bills that have just arrived. He is out of his budget and had since live and thrive with debt every month.

 The story is familiar among us. While occasional expenses will always comes around, the unpreparedness and hazy decision making has caught him to where he is right now financially. 1^st birthday, 7^th birthday, graduation, 1^st communion, debut, etc. are events worthy of celebration. These moments are what we treasure as a family. To celebrate the achievements of our families whether it is a lunch on the beach, a dinner on Max restaurant or spaghetti in the house helps in establishing great relationship within the family. As such, these events are indispensable. As Eleanor Roosevelt said, “The most important thing in any relationship is not what you get but what you give... In any case, the giving of love is an education in itself”.

However as the financial planner of the family, you need to anticipate the events and the costs associated with it so that you can plan your budgets. You need to budget so that you can give more in the future.

Obviously, Alvin needs a repair in his financials or perhaps an overhaul. But how is he going to fix it?

Emergency Fund

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This is a very important fund. Maybe you have savings every month but when an emergency comes in, all are gone. And you are back to   square one again. You save again, an emergency comes in (e.g. the roof is leaking, tuition fees, children school projects, relatives in the hospital, etc) and you go back to square one again. It's a cycle. It's a vicious cycle that if you won't do anything, nothing will change. So set aside an emergency fund so that when the emergency comes in, your savings and investments are not touched. You have a fund that will take care of them. If this fund reaches 500% of your salary  you can invest the remaining 50% in the stock market.

Personally, I have several ways of putting my emergency fund outside of our house. I put my first emergency funds in National Bonds. You can buy it at a minimum of 100 dirham. I’m buying every month and accumulating until it reaches my desire amount. In case of emergency, we always have something to pull off. National Bonds have a lock in period of 30 days but after that you can redeem your bonds anytime. They are having a weekly draw and they pay the bondholders a certain interest every year. Not bad for an emergency fund. Who knows you might be the next millionaire.

http://www.flickr.com/photos/72236935@N00/8228640

Another way is to buy gold at Gold Souk. You can sell the gold anytime to the shop and if you are lucky when the price of gold shoots up, you are entitled to profit from it.

My emergency fund is currently in cash. Sometimes I wonder if my loved ones have a secret eye overarching to where my emergency funds are. You call it mental telepathy. The moment you are about to celebrate your emergency fund reaching your desired amount, your loved ones start to call. Here are the common ones.

·        “The roof is leaking we need money”.

·        “The tuition fee increased and the money you are sending is not enough”.

·        “The basic food and commodities prices have risen, you need to send more”.

·        “Kuya, I have a project and I need 5,000 pesos”

·        “Dad, we need to go to Tagaytay for our field trip”.

·        “Mom, I’m going out only once a year, can you give me allowance to go to Bohol”.

·        “Your papa is going to be a ninong to Pareng Igme’s son and Pareng Reden’s daughter.”

·        “Fiesta is approaching and our mayor will come in our house. We need to celebrate big this time.”

Emergency Fund is necessary to maintain your sanity. 

A Child, a Gift From God

http://www.flickr.com/photos/44345361@N06/6874560581

My wife just gave birth to our lovely daughter and I've been the happiest man in the world ever since. The joy that a child brings to a couple or family is priceless. It is immeasurable so to speak. I know that delivery is one of the most emotionally draining events of women notwithstanding the fact that the delivery is also the most painful in their life. And yet despite in all these horrible emotions and physical capitulation, mothers are the happiest humans in the world when the torture dies down. The joy and delight overcomes the roller coaster emotions they have during pregnancy and delivery. A child, a precious gift from God. The science itself on how it was made from a tiny cell to a full grown infant complete with all the facial and physical features of the parents is itself a miracle. Indeed, God is omnipresent, ever knowing and perfect for all the exact science he has made in the world. And the mother for all its hardships, struggles, depression, and low self esteem has managed to set aside what she has endured and focus on the task ahead of rearing a wonderful child.

After a month or so, we've discussed the baptism. It was easy. We'll just set a date, invite friends, go to church and celebrate. It is procedural and yet we do not ignore the importance of this momentous occasion for our child. She is now officially a member of the church where the teachings of the church must be taught to her as she grows up. As the priest said during the seminar, the introduction of morals, church teachings and values begins at home. It doesn't begin in the school, in the church or in the community. It will always begin at home. I understand the responsibility of rearing a child, a God fearing child.I embraces it and I love it. I tried to always see the big picture for my family, a perspective where I see a happy and contented family.

http://www.flickr.com/photos/40645538@N00/2292064768

Maybe one day she will learn that there is no such thing as impossible. That the limits we have in our minds are not exactly the limits of the world. Some parents will say that is not true. “We are poor so how can my child becomes a doctor?” the mother would say. That's the problem, the parents have their own limitations and when they teach their children, they teach and bring with them their own limiting beliefs. And so those limiting beliefs are transferred to the children.

Trust your children, let them explore, let them dream and let them know that their generations are always better than their parents generation.

Oh by the way, my daughter has been exhibiting display of smartness at this early stage. She always tricks her mother and when she is about to sleep that wryly smile always appears on her lips.

Ayala Land wins FTI and its effect with PHES

ALI bagging the FTI deal raises doubts on the probability of the PHES JV deal. PHES is down today with 17M pesos transactions. Volume is considerably higher than the previous two days.

For the past 3 months PHES traded sideways with major support of .63 holding very well. Mr. Market tried to break the sideways trend but failed. Let’s see if the FTI deal will break .63. The FTI deal really drags down PHES but it will be worth watching the next few days whether PHES will go below .63. If .63 holds after a week of selling with volume, then I'll take the stride and hold knowing that the market could have discounted the FTI news. ALI's desire to beef its landbank to capitalize on strong demand for real estate is the cause of the JV with PHES. Now that the FTI bid is in the bag, where will the ALI/PHES JV go?

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ALI surprises everyone in the Ortigas deal and perhaps the FTI's deal also. It looks like ALI is good in surprises. I, on the other hand won’t be surprised if the JV is consummated notwithstanding the fact that the FTI and Ortigas deal devours most of the allocated budget of ALI. ALI is the premier developer and favorite of foreigners for nothing.

FTI is one of the last parcels of land of this size close to Manila’s CBDs.¹The other one I believe is the Plastic City.

PHES has been in the .60s level without the FTI deal and should go down today considerably (+10%) but it did not. The market has factored the JV speculation already at these price ranges. However if the JV will not materialize that is a different story and the price can go south dramatically and eventually will break the .63 barrier.

House 111 sold most of the shares it bought above .7 when PHES rose recently but House 219 and 106 bought it shares.

http://www.flickr.com/photos/91545223@N00/2772190827

The Play

The play at .63 to .67 is still intact as I wrote three days ago. If the JV with ALI will not materialize or .63 is broken, then it’s time to sell because the price may go back to where it started before at .20 ranges. Go back again in PHES if it goes to .2 ranges and then wait for another JV story.

¹ http://bworldonline.com/content.php?section=TopStory&title=Ayala-wins-FTI-auction&id=56817

Should I Invest In Penny Stocks?

From: Inquirer.Net
By: Henry Ong

Question: I have always been conservative in my stock investments. I only trade blue-chip stocks but sometimes I feel like I have been missing a lot, especially when I see my friends making a killing from speculating third-liners. Should I gamble on tips and rumors? Please advise.—Celeste Christopher by e-mail

Answer:

If you are the kind of investor who does not have time to monitor the stock market, investing in speculative stocks is not for you. Speculative stocks can be very risky because they don’t have the fundamentals to support a higher stock price expectation. Professional traders speculate on these stocks based on insider tips or recent company disclosures, believing that the stock will appreciate in value soon because of some significant changes that will happen to the company. What makes trading speculative stocks risky is that the stock can go up very fast as much as it can fall in just a few days.

Investing in speculative stocks without doing your homework is no different from gambling your money in the casino. Sometimes you can make money just by following tips from your broker, but most of the time you will lose. This is because you either bought a stock at a wrong price and did not cut your losses, or you kept it for too long without any idea where the company is heading to. There is nothing wrong with trading speculative stocks for as long as you play it carefully. You need to manage your risks by making an educated bet before you decide to buy.

Start by getting to know the company. Find out what the company’s business is all about and who are behind the management team. Review the company’s financials for the last three years to see how their earnings look like and if they have the financial capability to expand as they promised. Review its latest corporate disclosures to the stock exchange. You can get all these data by visiting the website of the Philippine Stock Exchange. Once you have all the information, identify the emerging story, that is, the speculations and rumors that will bring the stock up. Assess the situation carefully to see how possible the story is going to happen.

One of the most actively traded stocks last week was that of Manila Jockey Club (MJC). This stock went up to close at P3.82 last Friday, up by 77 percent on heavy volume from a low of P2.15 three days before. It makes one wonder why the market would be so excited to buy this stock even when its P/E ratio is already more than 100x. This is because the market is considering the possibility that the company will venture into a big gaming project, which justifies the current share price. If the project pushes through, the market expects the company to generate higher earnings and lower its P/E eventually.

A quick look at the recent disclosures by MJC will reveal that it has done some corporate restructuring recently. It transferred some of its properties to affiliates, apparently in preparation for a new business that will be into gaming and tourism. From the financials of the company, it appears that it will enter into a joint venture deal with another investor who will infuse the necessary capital to make this possible. The question is how much will the new project cost and at what price will the new investor come in. How soon will the project start and when will the cash flows start to kick in? If you can find answers to these questions, perhaps you can manage your risks and buy some of it for excitement.

Another stock, Tanduay Holdings (TDY), went up by as much as 200 percent last week to P14.66 from only P4.50 a few days before. The market was scrambling for the stock like crazy after news came out that the company would consolidate all the businesses of Mr. Lucio Tan and that it would be renamed LT group. Recent corporate disclosure will show that the majority ownership of Mr. Tan’s major businesses such as Asia Brewery, Fortune Tobacco and Eton Properties will be transferred to TDY, aside from the equity interests in Philippine Airlines, Air Philippines, PNB and Allied Bank. The consolidation will mean an instant increase in the annual sales for TDY and in its earnings.

Should you buy TDY at current share price? There are no details yet as to how much the impact on net income will be once all the businesses are in, but you can make an educated guess as to the value of the share price. If you compare TDY’s current market capitalization of only P45 billion with those of other listed holding companies, say, JG Summit’s  (JGS) P227 billion, or SM Investment’s (SM) P461 billion, or San Miguel’s (SMC) P266 billion or Ayala Corp.’s (AC) P255 billion, it is easy to conclude that TDY’s current share price should eventually increase by at least five times. But be aware that the current available shares in the market for TDY are only 14 percent making it relatively illiquid compared to others. You can speculate that they will increase the public float to more than 20 percent in due time and this will likely make the stock a blue chip in the future.

When you invest in speculative stocks, always put a target selling price after you buy. This is to make sure that you don’t get carried away at the height of market excitement when the stock is rising strongly. You can sell slowly as the stock climbs. Manage your risks by monitoring it well. Follow up the corporate disclosures and financial press and find out what the market is saying about the stock. Remember speculative stocks tend to rise and fall very fast so you should always be on guard.

http://business.inquirer.net/75481/should-i-invest-in-speculative-stocks

The PHES Strategy

Philippine Estates Corporation is engaged in the real estate business and is owned by Gatchalian family.

                               

                              

SNAPSHOT                                                              

# of shares outstanding:	1,445,549,830
Current Price:	.72
Stockholders’ Equity	1,004,109,830
Price to Book Value Ratio	1.03

FINANCIAL RESULTS

	2011	2010	2009	2008	2007
Real Estate Sales	34.1M	30.8M	74.9M	97M	172.4M
COGS	20.3M	18.5M	34.7M	63.2M
Gross Profit %	40%	40%	54%	35%
Realized Gross Profit	8.7M	9.7M	38.6M	47.5M
Operating Expenses	30.4M	37.2M	42.2M	43.5M
Net Income/(Loss)	(3.8 M)	(8.7M)	(40.3M)	(1.7M)	450K
EPS	(.0026)	(.006)	(.0279)	(.0012)	.0003
Book Value	1,015M	1,019M	1,027.5M	1,068M	1,069.5M
Book Value Per Share	.70	.70	.71	.74	.74
P/E Ratio	(88.54)	(12.58)	(3.77)	(130.01)	(994.21)
Stock Price	.233	.076	.105	.15	.31
Price to Book Value Ratio	.33	.1078	.1477	.2031	.42

The Bad

In year 2009, the company recognized an impairment loss of 52.1M for its related party transactions.

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Sales have been declining for the past five years. Obviously PHES needs a catalyst to save its deteriorating financial condition. The financial results for the past years never looked good.

A fledgling company with almost no material revenue to speak of cannot be measured using the P/E ratio determine the value of this company. P/E ratio must only be used when the JV with Ayala has materialized and operations start to move. Until then, we will use the Price to Book Value of this company to establish the target price which is very useful for an asset heavy company like PHES.

The Trade and Other Receivables have a past due of over 121 days worth 152 million pesos. That’s a lot of money and is a worrying sign of the capability of the company to collect its receivables effectively and efficiently.

The Good

The good thing about real estate companies is that they have high gross margin percentage. PHES gross margin is 40% which is good enough compared to other real estate companies.

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If the JV with Ayala will be signed and push through, it could be the start of something good for the Company.   

Price to Book Value Ratio is almost the same at 1.03 times. Ideal ratio is 1 or less so that we can maximize on the potential of its land inventories which are carried in the books on cost or NRV (whichever is lower) a conservative approach.

The land inventories and advances to related parties carry potential upside for the company. Any JV with the premier developers can unlock its potential and move from being a penny stock to a midcap stock. Its large tracts of land are positioned in primed areas of various locations, thus big developers who wants to penetrate that particular location may want to form a business with PHES.

Operating expenses of 30 million per year can easily be covered by the current installment contract receivables and the marginal sales it generates from its projects and properties.

The computation

I just checked the market price of industrial lot in Valenzuela City and I found out that 10,000 pesos per sqm is the average. However, since the purpose of the JV with ALI is to develop residential and commercial units in Plastic City, the price per sqm should go up. Add to that that Ayala units commands a premium in the market compared to other developers.

Avida Land Towers in Paranaque sells from 61,000 pesos per sqm to 80,000 pesos per sqm. We are taking 30% off from the market price since Valenzuela is not at the heart of Metro Manila. Part of the 32.7 hectares will be used for roads, pavements, common areas, playgrounds, etc., thus we will remove 30% from the 32.7 hectares.

Valenzuela Market Price - 61,000x70% = 42,700 pesos

Fair Value - 32.7 hectares x 10,000 sqm x 70% x 42,700 = 9,774,030,000 pesos

Ayala Land@60% =5,864,418,000 pesos

PHES@40% = 3,909,612,000 pesos

Future Book Value - 3,909,612,000/1,445,549,830 = 2.70

The Strategy

 Target price for the 32.7 hectares Valenzuela property at 42,700 per sqm is 2.70 pesos conservatively. It is worth noting that this 2.70 shall be spread over the period from which the JV will run to. We shall review this target price once more details will come up in the future.

Other raw lands and projects are not yet included in the computation.

Technically, the support price of PHES is .63. The buying range is from .63 to .67 as long as the JV story is intact.

If the JV with ALI will not materialize, then it’s selling time because the price may go back to where it started before at .20 ranges. Go back again in PHES if it goes to .2 ranges and then wait for another JV story.

Warning: PHES is a small cap company and is not for the faint hearted.