Real Life Value Investing Example (Philippines Setting)
Posted by Finance Dude On February 22, 2011
As promised from the previous article, here is one real life example of applying our short discussion to real life scenarios:
Pepsi Cola Philippines Inc. (Ticker Symbol: PIP)
Listed on February 1, 2008 on the Philippine Stock Exchange, Pepsi Cola is a company most people are familiar with. It listed with an IPO (Initial Public Offering) price of P3.50. The Summarized Balance Sheet as of June 30, 2007 is as follows (figures are rounded off for simplicity):
Total Current Assets P2.3Billion
Total Non Current Assets 4.5Billion
TOTAL ASSETS P6.8Billion
Total Current Liabilities P3.2Billion
Total NonCurrent Liabilities 0.3Billion
TOTAL LIABILITIES 3.5Billion
Capital Stock P0.5Billion
Additional Paid in Capital 0.05Billion
Retained Earnings 2.75Billion
TOTAL STOCKHOLDERS’ EQUITY (Net Worth) P3.3Billion
Cash from the IPO 4.0Billion
TOTAL NET BOOK VALUE or Stockholders’ Equity After IPO P7.3Billion
Market Capitalization After IPO (P3.50 x 3.68Billion shares) P12.9B
Market Capitalization Formula=Price per share x Outstanding Shares
During the IPO: the Market Capitalization is larger than the Net Book Value It is selling about 1.8 times its recorded value on its balance sheet, as calculated below:
Price to Book: (12.9B/7.3B= 1.8x)
Price to Book Formula=Market Capitalization Divide by Net Book Value
Let’s look at the 2007 Net Income
NET INCOME (for one year ending June 30, 2007) P1Billion
Let’s compute for (trailing) P/E
P/E: P12.9B / P1B = 12.9x
P/E : stock price per share divided by earnings per share (or market cap divided by total net income)
This means that if we buy at the IPO price of P3.50 per share and we expect to have the same 2007 Net Income in the future years, we’ll recoup our investment in about 13 years. Or put in another way, this could give us a return of about 8% per year (1 divided by 13). This assumes that earnings do not grow or do not decrease per year.
Let’s now look at the dividends:
According to its IPO prospectus, it will have a dividend policy of paying off 50% of its net income as dividends. So in this case, if it makes 8% a year, it will pay about 4% a year in dividends. You could get 4% return on your investments. This is better than time deposits but less than most long term government bonds.
(An IPO prospectus or red herring tells the public the important information about the company to enable the public to decide whether the IPO is a good one. Of course, I rarely know of investors who read it beginning to end before subscribing. Reading it should give you an advantage.)
Based on the IPO price, it’s an average investment but not an excellent one.
On the day of the IPO, it opened at P3.30 and went as low as P2.90. It traded above P2 until September 2008. Then the sub-prime crisis came. Most investors panicked, selling irrationally the stocks they had bought just a few months ago. Starting October 2008 the price fell below P2, it even went below P0.70 and traded below P1 from late October 2008 to late April 2009. (Honestly, I didn’t think people would less likely to drink Pepsi products just because there’s a credit crunch going on.)
Although the prices went crazy, the business did not. Let’s look at the Financial Statements for the Fiscal year ending June 30, 2008. (A business year that ends on December 31 is called a Calendar Year when it ends any other month its called Fiscal Year)
Pepsi-Cola Products Philippines Inc.
Balance Sheet
June 30, 2008
Total Current Assets P2.5Billion
Total Non Current Assets 5.5Billion
TOTAL ASSETS P8Billion
Total Current Liabilities P2.3Billion
Total Non-Current Liabilities 0.40Billion
TOTAL LIABILITIES 2.7Billion
Capital Stock P0.5Billion
Additional Paid in Capital 1.2Billion
Retained Earnings 3.5Billion
TOTAL STOCKHOLDERS’ EQUITY (Net Worth) P5.3Billion
Market Capitalization at P1 (P1 x 3.68Billion shares) P3.68Billion
Price to Book (3.68B / 5.3B = 0.69x)
LOOKING AT THE NET ASSETS:
The company is selling P0.69 for every P1 you’ll get using recorded book values. Based on the book value you’ll get about 30% discount.
We can also observe that the company has basically no long term debt. Long term Debt to Total Assets is just about 5% (0.40B / 8B). Long-term debt to equity is just about 7.5% (0.4B / 5.38B)
NET INCOME (for one year ending June 30, 2008) P0.76Billion
P/E Ratio (3.68B/0.76B = 4.84x )
LOOKING AT THE RETURN ON YOUR INVESTMENT:
Although the Net Income went down, and assuming it stays low, you still get a good deal. Here’s why: It would take less than 5 years (about 4.84 years) to recoup your capital if you invest at current prices (in this case P1) and faster if earnings grow. Now based on the IPO prospectus the reason for the IPO was to pay off the company debt and to expand. A company would not normally expand if there would be no room for more demand that is foreseen.
Dividends: The company has a policy of distributing half of the income as dividends. This means you could get a dividend return of about 10% a year assuming stock prices don’t go up soon. You would be paid about P0.10 on your P1 while you wait for price to go back up to its right value.
Risks:
The risks are:
- Since it’s a bottling company, it could have increased manufacturing costs that cannot be passed on to buyers immediately.
- Its license may be revoked. (This is unlikely since Quaker Global owns almost 30% of its shares)
- Poor management. (President owns about 20million shares and no changes in management is seen in the immediate term which means we could expect a similar performance from previous years. Net income should be about P600million to P1billion in the next few years)
- People stop drinking Pepsi Products (Although this could have big impact over the long term, in the next few years, consumers will typically have a similar consumption habits for the past years.)
What happened:
Starting May of 2009, it traded above P1 and never looked back. On October of 2009 it went as high as P2.50. If you have bought the stock below or near P1 and held it, you could have made at least 100-160% of your investment in less than a year.
I know you might think it can’t be done. But you can do it too. With a little analysis and a commonsense approach, it’s doable. As a matter of inspiration, I did it and so can you!
P.S. Why I chose it: I understood the business. I understood the financial statements. I know the risks and the rewards. The sell-off was not due to the problems of the company but mainly systemic in nature. (Systemic means all stocks in the exchange are simply being sold. People just want to get out.) Of course, I could have picked other stocks which are cheaper and has more growth and better prospects. Although, I did pick some others I chose it for the abovementioned reasons.
Disclosure: I currently do not own stocks mentioned above anymore. This is not an advertisement of the product or the stock. )
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About the contributor:
Finance Dude
The writer is a financial planner, investor, speaker and a self confessed cheapaholic. (Cheapaholic- a term he invented to mean someone who is addicted to being very cheap). Send in your questions. He will try to answer any questions you might have, preferably on finance and money matters. Although he does not object to questions on love and relationships, he never had one and due to his extreme cheapness, will probably never have one (In case you’ll send it mistakenly, he promised to forward it to HeaRty).
Disclaimer: Advice posted in this portion is merely opinions and views of the writer. It does not constitute formal advice. The writer will not be responsible for any of your gains or losses. If symptoms persist, contact your trusted financial planner.
Cobo Bubble Tea & Snow Ice
Posted by Rochelle Sy Chua On February 21, 2011
While I was driving along Tomas Morato last week, I saw a very bright spot somewhere. I was too curious to find out that I turned to the street where it was situated. Then I found out, there’s a new milk tea place yet again. This time though, the ambiance and the bright lights amazed me.
Christina & I ended up having drinks there after our dinner. Cobo Bubble Tea & Snow Ice is one of the many bubble tea places in the Metro. I can’t believe that new brands just kept popping out hahaha!
What I love with Cobo is the ambiance. The place is really big and the colors blend very well too! It’s so soothing to the eyes that you wouldn’t mind hanging out there for a long time.
- Cobo Milk Tea (Php 90)
I asked for a recommendation and the cashier had only one drink to say, Cobo Milk Tea. I ordered the cold one with pearls while Christina opted for the hot one. Even though they don’t have hot Cobo milk tea in their menu, they obliged with my friend’s request. Very cool.
I must say that Cobo’s milk tea is pretty much the same as what other bubble tea stations offer. They let us choose the level of sweetness, either low, medium or high. As I’m trying to monitor my weight, I’ve opted for low. I still liked the drink even without its usual sweetness. For a 16 oz, I believe the price is reasonable.
- Snow Ice (Php 85)
Cobo Snow Ice really caught my eye. Though I was a bit full, I opted to order one just to try it. It’s basically flavored shaved ice. There were a lot of flavors to choose from: original, chocolate, coffee, green tea, honeydew, mango, peanut, sesame & strawberry. Honeydew was our choice for the night. It was okay. Eating it was a bit refreshing too! Having those cute ‘lil pop pearls made it interesting and enjoyable to eat.
I called it pop pearls but Cobo Bubble Tea & Snow Ice actually called it Popping Boba. Every order of Cobo Snow Ice gives us one free popping boba of choice. We can also order additional for only Php 15. I was in awe just looking at them. They have mango, strawberry, orange, passionfruit, plum & yogurt flavors. Their strawberry was the best, thus my choice. The popping boba are pearls but inside it is fruit juice. So better choose the one of your liking 🙂
- Cobo Taiwanese Chicken (Php 60)
It’s quite unique that Cobo gave a twist to the usual Taiwanese chicken. Their Cobo Taiwanese Chicken has 3 variants: pepper salt, mexican and green tea. They recommended mexican but I still ordered pepper salt. I’m quite disappointed with their chicken though. It’s not as tender as I expected it to be.
I’m happy we tried out Cobo Bubble Tea & Snow Ice. Now, we have more hangout places to choose from after a heavy meal. I honestly am so tired of coffee shops. I’m a tea person and I would choose tea over coffee anytime.
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Cobo Bubble Tea & Snow Ice
#96 Scout Gandia Street, Tomas Morato, Quezon City, Philippines
(02) 736-5621
TV5 News Team Launches 360-Degree Multimedia Platforms
Posted by Rochelle Sy Chua On February 20, 2011
I was invited by TV5’s Social Media Head, Carlo Ople, to attend yesterday’s launch of News5’s latest offerings. We started off at a restaurant wherein we asked 2 top TV5 executives, Ray C. Espinosa (President and CEO) & Roberto V. Barreiro (Executive Vice President and Chief Operating Officer) about the much-awaited change that will happen with TV5’s news reporting.
Basically, there are 3 major things that would change the way we see journalism. TV5 news arm, News5, is really going all out. Innovating & changing the way they deliver news. I did ask some questions to both but I’ve gotten to know better at the Launch Party during dinner time.
- 92.3 NewsFM Radyo Singko
Wow! Never could I imagine that a news station will ever come on FM Radio. News5 is doing just that by pioneering 92.3 NewsFM Radyo Singko. They are hoping to reach a wider audience by bringing in news reports and talk shows on FM. Making it more interactive as well by getting inputs from listeners. Especially the ones who appreciate the change.
I also like that they enlisted the help of taxi drivers to be part of their team. Helping provide up-to-date news to us while they’re on the road. If you see 92.3 NewsFM stickers on the taxi you’re riding on, you’d know they’re part of 92.3 NewsFM Radyo Singko team.
- Interaksyon Website
Another addition is an all new website called Interaksyon where we’ll get updated with the latest happening in the country. Whether we’re in the country or abroad, we can be sure that we get the news and reports that we need.
One important aspect is that Interaksyon has tied up with 2 organizations that would be very essential for us. Organizations such as MMDA for synchronized traffic updates and Metra for weathercast. I myself is excited to see the all new Interaksyon. If delivered as promised, it’ll surely be a part of my everyday life.
- AksyonTV UHF Channel 41
A 1st in the Philippines, finally a 24/7 news and sports channel for FREE! AksyonTV is News5’s non-stop news and sports channel without the need of a cable subscription. It can be seen starting February 21, 2011 on Channel 41 (Channel 29 in Davao & Cebu).
AksyonTV basically delivers the latest national & international news continuously. This also include sports news. Most of the shows will be in Filipino & Taglish.
Martin Andanar will be the main face for news & sports. He will be joined by a team of news anchors, reporters & correspondents who has first-hand access to news that will benefit viewers like you and me. News anchors such as Cheryl Cosim, Paolo Bediones and the Tulfo brothers. I had the privilege to meet them last night. I was star-strucked 😛
AksyonTV will also have talk shows. Guess what? Popular personalities like Dick Gordon, Carlos Celdran, Dong Puno & Teddyboy Locsin will headline it. Wow! I’m especially excited with Gordon’s show called “Duelo”. I’ll tune in on February 21 for sure. I’m glad we have more channels now for non-stop news 🙂
Aside from the awesome way News5 presented their innovations & new channels, there was one thing that really stuck in my mind. (See below video for a glimpse of the launch).
News5 is taking that extra step. Doing their best to provide more than what is expected of them. They trained reporters to be able to provide first aid. See, they are always on the field. And situation calls for it when help is needed. News5 team is more than ready to help aside from being able to give us most-updated news 24/7.
Truly admirable & exciting. Something to look forward to, definitely.
Joey Pepperoni Pizzeria
Posted by Rochelle Sy Chua On February 13, 2011
We are running out of choices for places to eat out near our office. So I’m glad that DBP turned G/F of their building into a small commercial area where some food establishments are open to serve customers like us. One of them is Joey Pepperoni Pizzeria.
This wasn’t my 1st time to dine at Joey Pepperoni Pizzeria. However, I wasn’t able to take pictures during my 1st visit. Luckily, when our colleagues decided to eat out at the restaurant last friday, I brought my camera.
I really love the ambiance of Joey Pepperoni. Actually, I felt we’re not paying for the ambiance as the prices of the food are so affordable! Imagine Php99 meals in this wonderfully designed restaurant?? You have to go early on fridays though as it get filled up easily.
I ordered one of their rice dishes during my 1st visit and I liked what I ordered. This time around, we ordered what we are supposed to order in Joey Pepperoni Pizzeria, their pasta and pizza (that’s what they are known for, right?).
Here are the food we ordered:
- Mozzarella Sticks (Php 190)
I love Joey Pepperoni Pizzeria’s mozzarella sticks! Whether we dip them with pomodoro or not, they were still yummy. Every bite has that perfect amount of cheese w/ the right texture for consumption.
- Chicken Parmigiana (Php 228)
Pasta with pomodoro sauce with chicken thigh fillet. I especially love how tender the chicken was and to top it off, they put melted mozzarella cheese. A great pasta offering from Joey Pepperoni, totally enjoyed this dish.
- Pesto (Php 145)
A very simple pasta dish best suited for veggie foodies. A traditional pesto sauce with beans & potatoes. I liked the chicken parmigiana better than this. It wasn’t as tasty as I expected it to be.
- Iced Tea (Php 50)
Bottomless Iced tea. The brand though is Sunkist. I also appreciate that the servers were ready to refill our drinks without us calling them for it.
- Sunkist Orange Juice Drink (Php 40)
It’s the season of love and Joey Pepperoni has an ongoing promo that whenever we order their Sunkist orange juice drink, we’ll get a free heart-shaped pizza. It was just Php40 and we didn’t hesitate to avail of the promo. The pizza was very cute, perfectly shaped into heart. We wonder how they did it but it was definitely a nice sight to see.
- Joey Pepperoni (Php 325)
I expected Joey Pepperoni Pizza to be the best menu dish that Joey Pepperoni Pizzeria has. Why? Since the restaurant is named after it. Boy, I was very disappointed when I tasted it. It had some weird taste to it. I don’t understand it, maybe the cheese? There was a bitter taste that didn’t sit well with me. I asked my colleagues but they didn’t feel it. Maybe, it was just me.
- Quattro Formaggi (Php 335)
Joey Pepperoni’s version of four-cheese pizza. This pizza has mozzarella, cheddar, parmesan & white cheese. I did taste the same bitterness with this pizza. I didn’t like this too. I was only able to eat like half a slice of this.
Sad to say, I didn’t like Joey Pepperoni Pizzeria’s pizza offerings. I, however, liked their rice dishes & pastas. I also appreciate the very affordable prices of their dishes plus the awesome ambiance of the place. Will I be back? Maybe.
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Joey Pepperoni Pizzeria
Ground Floor DBP BLDG. Makati Ave. cor Gil Puyat Makati City, Philippines
(02) 519-5638
Burgoo at Powerplant Mall Rockwell
Posted by Rochelle Sy Chua On February 12, 2011
I do not know what’s with Burgoo that I always go back to it. I remember whenever I go to Robinson’s Galleria or Powerplant Mall, Burgoo has always been my choice of dining place. It’ll most probably be because it has great ambiance that we can stay there for a long time just to chit-chat and enjoy good food.
There was a short time that Burgoo was closed in powerplant mall for some renovation. Well, the finished product is okay. They just changed the look of the place. It became a bit darker in my opinion but change is something we always welcome.
I noticed as well that Burgoo knows the importance of customer service. There were servers scattered around the place to ensure that whenever any of their guests would need them, they’d surely see and be able to serve ASAP. I appreciate that, even though there was a male server who stood there and his mind was wandering somewhere else hahaha!
I was starving and my friends were too! I checked the menu and browsed through all the pages before I decided which dish to order. We ordered several appetizers but I settled for a main dish. Here are our orders:
- Lemon Iced Tea (Php 69)
Don’t we love bottomless drinks? They also have Coca-cola products & lemonade.
- Cookies & Cream (Php 145)
If you want a more ‘exciting’ drink, then this cookies & cream is for you. I’d much prefer iced teas or sodas though, I believe our food were rich enough for me to settle for simpler drinks hehehe.
- Gambas al Ajillo (Php 325)
If Sharleen didn’t order this, I wouldn’t have known that Burgoo’s gambas is good! I know now that the next time I visit the restaurant, Gambas will definitely in my must-order list. Burgoo’s version of Gambas has the prawns sauteed with olive oil, garlic, tomato sauce, cilantro & chili flakes with bell peppers & mushrooms. I believe the flavors blended perfectly and definitely perfect for our taste buds. I was really impressed!
- Buffalo Chicken Wings (Php 295)
buffalo wings with bleu cheese dressing served w/ 2 pieces of celery sticks. When I saw this dish, I was weirded out. I think w/ just 6 pieces of wings they could put it in a smaller plate. The buffalo tasted great but I guess they need to improve on the presentation.
- Extra Supreme Nachos (Php 295)
Terrific presentation! Tons of ingredients put into the crispy nachos: beef, pico de gallo, jalapeno slices, chicken breast and black olives. Salsa & cheese sauce were also served, we can ask for refill of the sauces too!
I don’t know if it’s just me but I enjoy eating nachos without anything but the sauce. I guess I’m different that way 😛
- Grilled Pork Chops (Php 425)
Can I just say that Burgoo cooks the best porkchop dishes? I was really impressed at how tasty and how delicious and perfectly cooked their porkchop were. If you’re not fond of fried dishes then you can order their version of juicy grilled pork chops.
- Breaded Pork Chops (Php 425)
I ordered 2 pieces of pork chops instead of 1 piece as the difference is just minimal (Php 100). I tried a bite of their grilled pork chop and I was already impressed. When I got to try my order of breaded pork chops, I was more than ecstatic. It was delicious too! It was marinated perfectly as even without any sauce, it was tasty! The pork chops were very tender too. I was only able to finish 1 pork chop and I brought the rest to my mom. She loved it too!
So friends, that was my lunch & dinner that day. 2 meals in one shot haha! I also thoroughly enjoyed the company of friends. Whenever we meet up, it’s always at Powerplant mall. I wish we can meet at other malls next time but if we meet and it’s at Powerplant mall again, I’ll try to have a conscious effort to try other restaurants or else, we might be dining at Burgoo again.
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Burgoo
3/F Power Plant Mall, Rockwell Dr. cor. Estrella St., Makati City, Metro Manila, Philippines
(02) 898-1815