Posted by: i-banker | October 4, 2013

Robinsons Retail IPO

Disclaimer: Views do not reflect those of the blogger’s employer. Some portions of the analysis are not final until the issuer and PSE discloses the final offer price.

First things first… it’s the first time that I’ll be writing about a development in the capital markets after more than a year. In a way, I’ve minimized the level of mastery in analyzing the different developments and offerings in the debt and equity capital markets. For those who did not know, I spent the last year doing business development and strategic planning duties for a company engaged in retail and real estate operations. It kinda feels exciting writing about my two cents of a primary offering in the capital markets.

To get my feet on the ground, I thought my first comeback analysis should be done on an issuer that belongs to an industry I am familiar with (hoping that all biases can be set aside): Robinson’s Retail IPO. Considering that my recent engagement is in retail, I will try my best to be objective in my analysis and observations. Also, pardon the absence of charts and Bloomberg shots, as I don’t have access to a Bloomberg Terminal.

The Offering Memorandum posted at the PSE disclosed that the maximum offer price of the IPO is at P86.64, with a maximum issue size of PHP40 Billion. However, according to recent press releases, Robinsons Retail IPO will offer approximately USD500 Million or roughly P22 Billion. Nevertheless, it remains as potentially one of the biggest if not the biggest equity listing debut in the PSE.

Given the several scenarios of this IPO, and assuming market charts and external shocks are not taken into consideration, let me try to give my 2 cents based on the following general assumptions:

  • On the first half of 2013, Robinsons Retail posted net income of P1.13 Billion. Let’s assume for simplicity that by the end of the year, they will be able to generate P2 Billion Net Income.
  • Given the drop of market valuations from the start of 2013, let’s assume that the offering will be at P22 Billion but with no changes to the shares to be offered. If inclusive of overallotment options, that would assume an offering price of P46 – computed as (P22 Billion divided by 461,897,500 offer shares

Given the abovementioned assumptions, the 2013 PE that I’m estimating should be around 32x at computed as follows:

  1. PHP46 per share x total of 1.385 billion shares to be listed, or P63,710,000,000
  2. P2 Billion net income or EPS of P1.44 per share

If we base it on the maximum price, then the possible 2013 Price Earnings Ratio  (PE) for Robinsons Retail  should be around 60x, which is already ridiculously pricy. But they already made a pronouncement that they might likely raise just USD500 Million.

The necessary condition for the Robinsons Retail IPO to be cheap relative to Puregold is for it to offer at a price not higher than P46 per share. Based on yesterday’s closing price of P43.75,  Puregold Price Earnings Ratio is around 39.37x, with a 2012 blended sales per sqm of roughly P188,328. It would be interesting to see what will be the blended sales per sqm of Robinsons retail, although I don’t personally expect it to be high even with the contribution of Ministop.

Ground analysis wise, I have the following issues on Robinsons Retail:

  • Except probably for Robinsons Galleria, Robinsons Place Ermita and Robinsons Magnolia, I think that the foot traffic of most Robinsons Department stores are weak, except during the months of June, November and December.
  • In terms of Supermarket and Hypermarket foot traffic observations, I would say it is the least busy compared to Puregold, Shopwise, SM, and Waltermart. In my own site visits and rounds, I have observed that the only ones that have jampacked shoppers are the supermarkets anchored inside the Robinsons Malls. Those that are leased elsewhere are not as busy. But they are definitely busier than the Super8 stores.
  • However, the success of Ministop in getting its market share from 7-Eleven is undeniable.

But my observations can only be quantified once the sales and floor area information is disclosed, which can only be seen in the final prospectus.

But will I buy Robinsons Retail? Definitely not at P86.64. Still undecided at P46 until I finally see the consolidated and per segment sales per sqm and gross and EBITDA margins. But P35 might be worth grabbing this early on.

I’ll have an update of this entry ones I get more information.

Posted by: i-banker | April 19, 2012

East West Bank IPO

As of yesterday, East West Bank has already priced its common shares at PHP18.50. Assuming my employer’s computations are correct, this would translate to a post-offer Price Earnings Ratio of 12x and a Price to Book Ratio of 1.18x. Without a doubt, this is definitely a bargain. The trailing PEs and PBs are lower than the median of the banking sector, although RCBC comes as the few notches cheaper from the offer price of East West. 

However, grabbing East West could be advantageous both on the fundamental and trading standpoint because of the following considerations:

  • Tactical branch network advantage – Metrobank, BPI and BDO already have restrictions in expanding adding more branches from Metro Manila a.k.a. restricted areas. East West can obviously take advantage of this opportunity and race alongside other banking sector players.
  • Last quarter run-up of banking sector stocks – when the BSP slashed its reserve requirements, the banking sector stocks enjoyed the most gains. Thus, in absence of accurate earnings information, there might be less motivation for the existing listed stocks to increase especially given their higher PEs and PBs. East West can still enjoy potential banking sector industry upside because it will be listing from a low PE and PB offer price.
  • Historically, at least based on BSP data on 2010 earnings, East West ranked 6th in terms of ROE of the entire banking sector.
  • I personally think that their efforts to heavily advertise have been paying off especially on the consumer loan generation side.

One course investors should also take the following risks into consideration:

  • East West has a higher and volatile NPL ratio
  • Market capitalization (PHP20.86 Billion) and market float (25% as per my estimate) are also low. But it could also be tactical in terms of support mechanism purposes.

These are really interesting times in the stock market. Good thing the North Korea satellite launch didn’t become a “market surprise”.

Posted by: i-banker | March 23, 2012

GT Capital IPO

Disclaimer: Views do not reflect those of the blogger’s employer.

It’s been almost two quarters since I last returned to this blog. Perhaps the readers of this blog already rendered this blog useless. But I’m trying to be active again this year, given the seemingly increasing number of IPOs.

My first attempt to analyze something for this year is for GT Capital. Coming up with price multiple computations for GT Capital could be a bit tricky, and I won’t be surprised if the brokers will have different Price Earnings and Price to Book computations because of the following considerations:

  • GT Capital’s 2011 books only reflect full consolidation of Federal Land, Inc. This means that the balance sheet and income statement expenses only reflect those of Federal Land
  • GT Capital has less than 50% ownership on Metrobank (25%), Toyota Motors Philippines (21%), and Philippine Axa Life Insurance (25%)
  • On February 2012, GT Capital had 34% ownership of Global Business Power (GBP), the Ty family’s vehicle in the power production industry. This is not yet included in the 2011 consolidated financial statements. On February 16, 2012, GT Capital secured SEC approval of the conversion of a deposit for future subscription into common shares of GBP in January 2012, representing a 21.04% interest in GBP and the execution of Deeds of Absolute Sale with GBH for the sale and transfer of common shares of GBP, with GBH as seller and the Company as the buyer, representing a 13.37% interest in GBP. GT Capital will hold a 39.0% direct share of GBP, if it will exercise its option to acquire from GBH an additional 4.6% in GBP.  GT Capital is also saying that before 2012 ends, GT Capital will have 51% share in GBP.

Given the abovementioned points, you have the option to price GT Capital based on what it is worth today accounting-wise, or based on what you think it will be worth in the near future given the consolidation of Global Business Power. Of course your guess of the ability of the Ty family to have a good play in the power sector is as good as mine. If you have all the time in the world, it would be ideal to come up with different valuations of each subsidiary and come up with a “sum of all parts” valuation methodology based on the ownership structure of GT Capital per existing and upcoming subsidiary.

But given my limited time to review the Prospectus and the financials of GT Capital and subsidiaries, below are my own personal investment considerations of this IPO:

  • GT Capital is the holding company of the Ty Family. Let’s just say that among the prominent families in the Philippines, it is probably just the Ty family that has no holding company listed in the Philippine Stock Exchange. Other prominent families are already there… the Ayalas, Sy, Lopez, Aboitizes, among others.
  • Based on my own computation, trailing post-offer PE of GT Capital given an IPO price range of PHP415-470 would be anywhere between 19x-21x. Note that I only used the Net Income attributable to GT, meaning no minority interests. If the pre-offer structure will be considered, PE ratio would range between 15x-17x using the same net income as basis of computing earnings per share.
  • However, the aforementioned PE computations do not yet include the income contribution resulting from the consolidation of Global Business Power (GBP), the Visayas power producer arm of GT Capital. In the prospectus, GT Capital came up with a pro-forma FS assuming GBP was consolidated in 2011. If the consolidated earnings will be considered, post-offer PE ratios could go anywhere between 13x-15x. This means that if you have confidence in the Ty ability to play in the power sector, then GT Capital is a cheap buy.

Just to compare it with the existing Ty-issues, you may refer to the price multiples below (source, Bloomberg):

  • Metrobank has a trailing PE of 17.42x and PB of 1.8x.
  • PS Bank has a trailing PE of 11.20x and PB of 2.2x.
  • FMIC has a trailing PE of 8.40x and PB of 1.4x.
Given the price multiples of Metrobank, and the fact that the stock had a run-up after BSP slashed down reserve requirements more than a month ago, this could be an alternative in entering Metrobank too. Note however that GT only enjoys 25% of Metrobank’s earnings. But if you want a pure banking play, then stick to Metrobank.

One major downside, however, is that the GT Capital’s persent structure only considers Federal Land under full-consolidation method. This real estate subsidiary contributes 55% of total revenues of GT. However, after my brief attempt to analyze the FS of Federal Land, it only has 6% ROE considering it has a Debt-Equity structure of 1.21x.
Based on my quick look at the Bloomberg data, ranges of PE conglomerates go anywhere between 12x-27x. Ayala has a PE of 26.34x. JG Summit has 16.7x, and MPI has 23.65x. The GT Capital PE is anywhere between the low end to midpoint of all the PE of the other conglomerates.

To summarize:
  • GT Capital is doing good because of Metrobank
  • Federal Land is not a sexy company
  • Global Business Power prospects is there. But your guess of the Ty family to do good in the power sector is as good as mine
  • Metrobank stock is slightly cheaper than Metrobank on a PE basis, but the Metrobank stock is currently overbought based on technicals.

It would be interesting to see how the international lead manager and the domestic underwriters and brokers will pick up the issue. Rumors say that the Qualified Investor Buyers are already ganging in on possible allocations, but the brokers remain to be better indicators of the success of this issue (at least locally).

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