Lopez Holdings: When Expenses Rose Faster

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Lopez Holdings (LPZ), Philippine-based 22 billion investment holding company, recently reported its 2017 financial operations.

LPZ generated most of its business or 82% of its revenue from electricity sales.

The company reported 14% rise in revenue but delivered a contrasting 36% drop in profits.

In review, LPZ added 13 billion in revenue but expenses rose 13.3 billion therefore eating any additional business generated in 2017.

Specifically, LPZ stated that its subsidiaries First Philippine Holdings (ticker FPH) and ABS-CBN (ABS) recorded 41% drop in profits and 10% reduction, respectively.

To shareholders, more of LPZ’s profits usually end up with non-controlling interests. In 2017, 71% of LPZ’s total profits went to the latter.

There was no 2018 outlook on LPZ’s April 17 press release for its 2017 performance.

By December, LPZ had 157 billion in debt, 47.7 billion in cash, and 60.5 billion in book value.

This blog estimates indicated a high uncertainty figure per share of 10 vs. 4.79/share at the time of writing (4/22/2018).

Due to high leverage, some investors may still find it hard to invest in the investment group.

Disclosure: No shares in LPZ

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GMA 7: Cruising Along

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Media network’s dividend yield supplants high yielders

GMA 7, 19 billion peso Philippines-based media broadcasting company, reported its annual 2017 results last week.

The company recorded 8% drop in revenue and 30% drop in its profits.

GMA recorded steady sales growth minus its 1.5 billion revenue windfall from the 2016 elections. GMA 7 generated 81% of its business revenue from its namesake channel.

“Minus the extra-ordinary election-related load last year, airtime revenues from regular advertisers ended at about the same level as last year.”

GMA 7 Filings

In 2017, GMA ended with 500 million in debt, 2.3 billion in cash, and 9.4 billion in book value.

What is more attractive is that the company has been a consistent dividend payer since 2005. GMA currently has a very attractive dividend yield of 8.8%.

In the US broad exchange traded funds, iShares iBoxx $ High Yield Corp Bond (ticker HYG) yielded at 5.54%.

In the past three years, GMA allocated 8.6 billion in financing activities most of which or 6.7 billion were provided as dividends to shareholders.

COL FInancial has a buy recommendation on GMA 7 with 8.50/share fair value. This blog’s estimate indicated 6.4/share.

Disclosure: No shares in GMA

Church & Dwight: Strong Revenue Growth for 2017

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Trojan condom maker finds healthy growth

Church & Dwight (CHD), $11.2 billion Trojan condom maker, has underperformed the broader market so far this year having provided -8.2% total losses to its shareholders.

Interestingly, the company reported healthy and strong results for its 2017 operations. CHD recorded 8.1% rise in revenue and 62% increase in profits.

“Q4 organic sales growth exceeded our outlook in all three segments. Our Q4 category growth improved sequentially and year over year. The Consumer Domestic business had strong volume growth in Q4 while the promotional environment improved. In the domestic business, 7 out of 11 power brands exceeded category growth in 2017. The investments in our international business, particularly export, are paying off as evidenced by consistent organic growth which we expect to continue. In 2017, we made a great acquisition with Waterpik. Finally, we concluded the year with strong growth in our animal productivity business. We are hitting on all cylinders.”

Matthew Farrell, Chief Executive Officer

Income taxes brought a one-time favorable adjustment to the company’s bottom line.

Even with this one-time gain, CHD reported $2.4 billion debt, $279 million cash, and $2.2 billion book value.

In the past three years, CHD allocated $276 million in financing activities with $1.7 billion in shareholder dividends and buybacks, and accumulatively generated $1.8 billion in free cash flow.

Average analysts recommendation is a hold with $50.18/share price target vs. $45.84 at the time of writing. This blog’s estimates indicated a per share figure of $43.3.

Disclosure: No shares in CHD.

Kimberly Clark: Declining Book Value is Unappealing

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Diaper maker trying to keep hopes up

Kimberly Clark, $35 billion personal care manufacturer, has breached the $100/share mark after having peaked at $130 a year ago.

The Huggies diaper maker reported 0.31% revenue increase in its 2017 operations with 5.2% rise in profits.

“In 2017, we delivered bottom-line growth in a challenging environment. We also achieved all-time record FORCE cost savings of $450 million and reduced discretionary spending to help offset inflationary cost headwinds. In addition, we returned $2.3 billion to shareholders through dividends and share repurchases.”

“Although we expect market conditions will remain challenging in the near-term, we plan to deliver better results in 2018 while we begin to implement our new restructuring. We expect organic sales to return to growth while improving our margins and delivering double-digit growth in adjusted earnings per share. In addition, we will increase investments in our brands, our growth initiatives and the capabilities we need for long-term success. We will also continue to allocate capital in shareholder-friendly ways.”

“We believe that, over time, our 2018 Global Restructuring Program will accelerate our return to delivering on our long-term growth objectives. This is the biggest restructuring we have undertaken since the introduction of our Global Business Plan in 2003, and it will make our company leaner, stronger and faster. The changes we are making will improve our underlying profitability, provide more flexibility to invest in growth opportunities and help us compete even more effectively. At the same time, we are expecting our ongoing FORCE program to continue to deliver significant results and are making that clear by establishing a multi-year commitment for this program. Combined, our restructuring and FORCE programs will generate more than $2 billion of total cost savings over the next four years, giving us substantial funds to drive profitable growth. Today’s announcement is the latest example of Kimberly-Clark’s proactive and strategic approach to improving our business so we can win in the marketplace and create long-term shareholder value.”

Chairman and Chief Executive Officer Thomas J. Falk

It is very important that Kimberly-Clark keeps its investors, or what’s left of them, very much upbeat moving forward. Some of which may be already be turned off by its $7.4 billion debt over its $629 million equity.

In the past three years, the company allocated $5.9 billion in financing activities and accumulated $5.9 billion in free cash flow.

Part of its financing activities included Kimberly-Clark having provided $6.5 billion to its shareholders via dividends and buybacks.

Average analysts recommendation is hold with a target price of $117.06/share vs. $99.9 at the time of writing.

This blog usually does a valuation of a company base on its book value and in Kimberly-Clark’s case would not try making a value out of the recent figures.

Disclosure: No shares in Kimberly-Clark.

Ayala Land: High Growth Achiever

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Market loves this Philippine real estate power house

Ayala Land (ALI), a 605 billion real estate conglomerate, recently reported a healthy 13% increase in revenue and 21% rise in profits for its 2017 operations compared to 2016.

Ayala’s main business generator is its residential development (Ayala Land Premier, Alveo, Avida, Amaia) followed by its shopping center businesses among others.

The property specialist also reported 174.4 billion in debt, 25.7 billion in cash, and 167 billion in book value as of 2017.

In the past three years, ALI raised 55.5 billion in financing activities while having provided 20 billion in dividends to shareholders.

COL Financial has a buy rating on ALI with a 53.07/share fair value. This blog’s estimates indicate a per share figure of 34.3 compared to 41.10/share at the time of writing (4/22/2018).

ALI has averaged health high teens business growth in the past decade, and there are no signs of this slowing down.

However, high multiples (currently at 24x p/e trailing, 4x book) makes ALI a pass.

Disclosure: No shares in ALI.

Alliance Global: On a Slump

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Quick review of the McDonald’s operator in the Philippines

Alliance Global (AGI), a 133.5 billion peso Tan-led holding company, recently reported 1.5% rise in revenue for its 2017 operation compared to prior year and a 0.6% increase in profits.

“2017 has been a rather challenging year for the Group but that never deterred us from pursuing our growth ambitions. As we move forward, we remain focused on investing in our future. We have in fact spent close to P70 billion during the year for our ongoing expansion plans,” says Kingson U. Sian, President of AGI.

AGI has yet to file a complete annual report for its 2017 operations but as of September last year had 122 billion in debt, 77.8 billion in cash, and 157 billion in book value.

AGI’s business includes Megaworld, Travellers, Golden Arches (exclusive McDonald’s franchise), and Emperador. Megaworld produces most of AGI’s profits followed by Emperador.

According to its recent press release, AGI’s McDonald’s business recorded a healthy 33% rise in profits year over year and 12% rise in revenue for 2017.

AGI’s book value has grown at an average of 1.94% in the past ten quarters. The company also took in 30 billion peso in financing activities* in the past three years.

AGI, nonetheless, remains committed to allocating more money in its Megaworld business, 75% to be exact, for its 2018 operations.

COL Financial Group recently raised its fair value for its AGI to 18.34/share and rated its shares a buy. This blog’s estimates, meanwhile, arrived at a per share figure of 23.3/share.

At the time of writing (4/22/2018), AGI traded at 13.14/share.

Investors should consider buying AGI if they could just ignore AGI’s debt intake and weak business growth in recent years.

Disclosure: No shares in AGI.

*earlier blog said debt net repayments; corrected to financing activities.

Metropolitan Bank and Trust: Markedly Undervalued Bank

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Disappointed bank investors should look at this opportunity

Share price of Metropolitan Bank and Trust (MBT) did not escape the recent Philippine stock market rout so and has fallen nearly 13 percentage points so far this year.

Some of the decline can be attributed to its stock offerings but nonetheless the bank did good in its 2017 operations.

MBT recorded strong 17.8% rise in revenue, or interest income in financial firms term, and a mere percentage points or 0.76% increase in profits.

MBT has allocated 817 million more to its non-controlling interest therefore resulting to lower profitability for shareholders in 2017 compared to 212 million more in 2016.

The second largest bank in the Philippines in terms of assets experienced an interesting 0.71% decline in book value to 204.1 billion giving it a price-book value multiple of 1.3x compared to its industry’s 3x.

MBT had a decline in its Common Equity Tier 1 ratio to 11.79% from 12.54% a year earlier.

The bank’s non-performing loans were maintained at a ratio of 1.01% as of December 2017.

MBT’s profit metric, net interest margin, ended at 3.75% in 2017 compared to 3.43% in 2016.

“We are pleased to report positive results in our core business. The strength of our deposit franchise continues to support our loan growth, particularly in the commercial space as we help finance the expansion plans of our customers. Core revenues increased at a healthy rate, while operating expense growth was capped to single-digit.”

“Our momentum continues to build up, and we are well-positioned to accelerate our growth plans moving forward.”

Metrobank President Fabian S. Dee

In the past three years, MBT raised 74 billion in financing activities and provided 10.3 billion in shareholder dividends.

The bank had 353.6 billion in cash as of December 2017.

COL Financial, a reputable brokerage firm in the country, rated MBT a buy with 103/share value. Personal estimates indicated a per share figure of 146/share.

Disclosure: MBT investor.