The Fisherman and the Investment Banker

I read this story from the blog of Fritz Villafuerte.

Here's a link to the story in his website: The Fisherman and the Investment Banker


An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked.

Inside the small boat were several large yellow fin tuna.

The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.

The Mexican replied, “only a little while.”

The American then asked why didn’t he stay out longer and catch more fish?

The Mexican said he had enough to support his family’s immediate needs.

The American then asked, “but what do you do with the rest of your time?”

The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siestas with my wife, Maria, and stroll into the village each evening where I sip wine, and play guitar with my amigos. I have a full and busy life.”

The American scoffed.

“I have an MBA from Harvard, and can help you,” he said. “You should spend more time fishing, and with the proceeds, buy a bigger boat. With the proceeds from the bigger boat, you could buy several boats, and eventually you would have a fleet of fishing boats.”

“Instead of selling your catch to a middle-man, you could sell directly to the processor, eventually opening up your own cannery. You could control the product, processing, and distribution,” the American continued.

“Of course, you would need to leave this small coastal fishing village and move to Mexico City, then Los Angeles, and eventually to New York City, where you will run your expanding enterprise,” the investment banker concluded.

The Mexican fisherman asked, “But, how long will this all take?”

To which the American replied, “Oh, 15 to 20 years or so.”

“But what then?” asked the Mexican.

The American laughed and said, “That’s the best part. When the time is right, you would announce an IPO, and sell your company stock to the public and become very rich. You would make millions!”

“Millions – then what?” asked the fisherman.

The American said, “Then you could retire. Move to a small coastal fishing village where you could sleep late, fish a little, play with your kids, take siestas with your wife, and stroll to the village in the evenings where you could sip wine and play guitar with your amigos.”

- Original Author Unknown

Sell Update: BPI

Our Target Price for BPI has been hit.

Current Price is at P94. RSI levels indicate that the stock is now oversold and is due for correction or a decline in stock price.

Sell now.

Fund Managers buying stocks ahead of Investment-Grade Rating Upgrade

source: http://www.mb.com.ph/articles/382457/fund-managers-buying-stocks-ahead-of-investmentgrade-rating-upgrade#.UK7yuo6AQ-B

by Ian Sayson  of Manila Bulletin

The Philippines’ biggest fund managers are buying more consumer and property stocks as prospects for an investment-grade credit rating and lower borrowing costs drive the benchmark index to a record.

The Philippine Stock Exchange Index (PSEI) jumped 26 percent this year to a high of 5,500.58 Tuesday, driving valuations to 15.5 times estimates for 2013 earnings, the most among 15 Asian- Pacific markets tracked by Bloomberg. The measure is trading at its biggest premium to the MSCI Emerging Markets Index since Aug. 3 as analysts predict a 12 percent increase in the Philippine gauge’s earnings in the next 12 months.

BPI Asset Management Inc.’s Paul Joseph Garcia is buying food and drink manufacturers as the slowest inflation rate in four months gives the central bank room to cut record-low borrowing costs to shelter the economy from the global slowdown. Metropolitan Bank & Trust Co.’s Allan Yu is investing in homebuilders and retailers amid expectations the Philippines will win an investment-grade credit rating as early as 2013.

“We have started to take positions for the coming year,” Garcia, who helps manage about $18.5 billion as senior vice president at BPI Asset, said by phone yesterday. “The Philippines is still expensive relative to other Asia-Pacific markets but that’s the premium you pay for earnings certainty.”

Garcia predicts the Philippine Stock Exchange Index may climb another 18 percent through 2013 to 6,500. The gauge could rise 5.4 percent to 5,800 by the end of this year, said Yu, who helps manage $10.3 billion at Metropolitan Bank, the nation’s second-biggest bank by assets.

Bangko Sentral ng Pilipinas lowered its overnight borrowing rate for the fourth time this year on Oct. 25 after second-quarter economic growth slowed to 5.9 percent from a 6.3 percent pace in the previous three months. President Benigno Aquino is increasing spending and seeking more than $16 billion of investments in roads and airports to spur economic growth as fast as 7 percent in 2013. The Philippine stock index’s increase this year compares with a 13 percent climb by the MSCI Southeast Asia Index and the MSCI Emerging Markets Index’s 7.1 percent advance. The Southeast Asian measure trades for 14.1 times estimated profit, a 25 percent premium to the emerging-market gauge’s multiple of 11.3.

The 10 largest consumer stocks in the 268-member Philippine All-Share Index including Universal Robina Corp. and Pepsi-Cola Products Philippines Inc. have climbed an average 70 percent this year amid prospects of increased consumption, which accounts for 74 percent of the economy. Growth in second-quarter consumer spending accelerated to 5.7 percent from 5.1 percent the previous three months, government data show.

Stock Update as of Nov. 17, 2012

Stock Update:

legend:

CP - current price
BBP - buy below price
TP - target price

Ayala Corp (AC) - cp 449.8, tp - 520, bbp - 452

Banco De Oro (BDO) - cp 68, tp - 86, bbp - 75

Aboitiz Power (AP) - cp 34.35, tp - 38, bbp - 33 *stop buying for now.

EEI Corporation (EEI) - cp 8.9, tp - 10, bbp - 8.7 *hold from accumulating. if TP is hit, do not sell just yet.
-caught my interest due to steady growth of EPS by 15% every year. Construction sector will also benefit largely from continued boom in construction as well as a lot of PPP projects lined up for 2013.

Bank of Philippine Islands (BPI) - cp 85, tp - 91, bbp - 79 *stop buying for now.

First Philippine Holdings (FPH) - cp 91.8, tp - 110, bbp - 96

JG Summit (JGS) - cp 34, tp - 40, bbp - 34.8 *slow gainer

Metrobank (MBT) - cp 95.25, tp - 120, bbp - 104

Megaworld Corp (MEG) - cp 2.47, tp - 2.87, bbp - 2.5

SM Prime Holdings (SMPH) - cp 14.48, tp - 17, bbp - 14.79

Caveat Emptor!

IMF lauds PH growth amid global slowdown

MANILA, Philippines - The Philippines faces bright economic prospects despite the global slowdown, visiting International Monetary Fund (IMF) Managing Director Christine Lagarde said yesterday.

“You will be interested to know that this year, 2012, at a very difficult time because of the financial crisis in other parts of the world, the Philippines is probably the only country of which we have increased the growth forecast as opposed to other places in the world where we decreased our forecast,” Lagarde said in a press briefing. The Philippines was the last leg of the IMF chief’s Asian tour.

Malacañang had to cancel her scheduled courtesy call yesterday because President Aquino was down with flu. Vice President Jejomar Binay received her instead at his office at the Coconut Palace in Pasay City.

In yesterday’s press briefing, Lagarde said the IMF now sees the Philippine economy growing “in excess of five percent” this year and “in the range of five percent” next year or higher than the 4.8 percent forecast for both years under the institution’s latest World Economic Outlook released last month.

The success of governments in providing jobs and livelihood to citizens depends on economic growth.

The IMF’s upgraded forecast, as bared by Lagarde, meets the lower-end of the Aquino administration’s five-to six percent growth target for this year. As of first semester however, the local economy has already breached the target at 6.1 percent.

Lagarde also congratulated the country’s economic managers for their “excellent economic stewardship” which had enabled the local economy to post an average of five percent growth over the past decade.

She also cited the “excellent policy mix” employed by the Department of Finance, which is in charge of raising state revenues, and by the Bangko Sentral ng Pilipinas, which sees to it that prices of basic goods and services remain stable.

She acknowledged, however, that much remains to be done to ensure that growth is inclusive, maintaining that about 42 percent of the population can still be considered “poor” as they live with less than $2 a day or roughly P80.

“All the efforts including the cash transfer program under your stewardship are trying to reduce the inequalities that clearly hamper sustainable growth in the long term,” she said, referring to the P1,200 conditional cash allowance for poor families. 

Lagarde also expressed support for the “sin tax” bill, certified as urgent last Thursday by President Aquino.

The measure, which she called a “great progress for the revenue collection of the country,” would be voted upon on Monday at the Senate. It aims to raise up to P45 billion from adjusted tobacco and liquor taxes.

“So, let’s hope that this bill would be voted on Monday and that tax collections would result from this piece of legislation,” she added. The Philippines had already settled all its IMF debts in 2006.

“The IMF is very pleased for the historical partnership that we have had, particularly pleased that it has taken in the form of a creditor relationship and one where clearly we will be doing everything we can to support with technical assistance the effort of Philippine authorities to expand growth throughout the country,” she said.

Lagarde’s Asian tour was meant to draw insights from the region’s policymakers to help the institution solve the four-year-old debt crisis in Europe. Asia itself had to deal with a financial crisis in 1997.

In her meeting with Binay, Lagarde also expressed her gratitude for the country’s $1-billion contribution to the IMF last June.

“The contribution helped ensure global and regional financial stability amid the crisis in Europe,” a statement from the Office of the Vice President quoted Lagarde as telling Binay.

She also told Binay that the country’s change in status from being a borrower to a creditor nation is “a big shift.”

“To see your country come up with a contribution on World Bank loans at a time when the economic crisis is not here but in Europe in particular was real,” Lagarde said.

“It was not so much the money, it was the signal that you gave,” she pointed out.

Lagarde said it was now the European countries that have become the borrowers, with Ireland, Portugal and Greece being the IMF’s largest beneficiaries.

For his part, Binay expressed hope that Europe would soon overcome its financial crisis.

source: http://ph.news.yahoo.com/imf-lauds-phl-growth-amid-global-slowdown-160409766.html

New SEC ruling on foreign ownership limited

GLO, TEL, MWC, ICT, ALI and media companies to be the most affected by SEC’s draft rules on foreign ownership

SEC: Foreign ownership limit to be imposed on each class of shares. On November 5, the Security and Exchange Commission (SEC) released its draft rules and guidelines on foreign ownership. The two most important items from the rules were that 1.) the SEC will require all covered corporations to observe the 40% foreign ownership restrictions for each class of shares, given that these classes of shares have different rights, privileges and limitations; and 2.) all companies in violation of this ownership restriction are given a maximum of five years to comply.

GLO, TEL, MWC, ICT and ALI to be the most negatively affected. Listed companies that are in violation of the foreign ownership limit based on the stricter definition of the SEC are TEL, GLO, MWC, ALI and ICT. Share price performance of the five stocks would most likely be negatively affected by this development. If the SEC upholds the draft, the five companies would either have to force foreign shareholders to sell down shares to local investors or issue new common shares to local investors, leading to dilution. The value of shares that will have to change hands or raised is also significant and could be a challenge (see exhibit 1 for details). Assuming that all five companies choose to sell existing shares held by foreigners to local investors, local investors would have to absorb Php160 Bil worth of shares. On the other hand, assuming that all five companies issue new common shares to local investors, the amount of capital to be raised is Php400 Bil. Foreign investors would also not be allowed to buy shares of the five companies and this would negatively affect the liquidity of the stocks.

Media companies to also be negatively affected as PDRs to be subject to foreign ownership limits. Issuing Philippine Depository Receipts (PDRs) to address foreign ownership limit might not be allowed as the draft rules state that depositary receipts are “subject to the ownership restrictions prescribed by the Constitution”. Note that PDRs are derivative instruments that only receive the economic benefit of the underlying common share. Owners of PDRs do not have voting rights, and as such, PDRs were not included in the computation of foreign ownership in the past. Recall that foreign ownership is not allowed in media companies, and ABS and GMA issued PDRs in the past to allow foreigners to indirectly invest in their stock. However, under the new rules, PDRs will also be subject to foreign ownership limits. As such, foreign investors who own PDRs of ABS and GMA will also have to sell them to local investors. The value of PDRs that will have to be sold down is Php8.8 Bil.

Companies to most likely engage in a discussion with the SEC. We would like to stress that these are just draft rules and still subject to change. Although we have yet to receive any comments from potentially non-compliant companies, we believe that these companies would most likely engage in a discussion with the SEC given the potentially adverse impact of the proposed rules on foreign ownership limit on the market and on their shares.

Stock Watch: PIP

Pepsi-cola Product Phils., Inc. (PIP)

According to the Consolidated - Non-Audited financial statement for the first quarter of 2012, total net operating revenues increased with 10.08%, from PHP 4,081,962 thousands to PHP 4,493,234 thousands. Operating result increased from PHP 150,243 thousands to PHP 315,975 thousands which means 110.31% change. The results of the period increased 97.17% reaching PHP 224,849 thousands at the end of the period against PHP 114,038 thousands last year. Return on equity (Net income/Total equity) went from 2.02% to 3.65%, the Return On Asset (Net income / Total Asset) went from 1.28% to 2.07% and the Net Profit Margin (Net Income/Net Sales) went from 2.79% to 5.00% when compared to the same period of last year. The Debt to Equity Ratio (Total Liabilities/Equity) was 75.79% compared to 57.95% of last year. Finally, the Current Ratio (Current Assets/Current Liabilities) went from 1.02 to 0.83 when compared to the previous year.

CP: 5.4
TP: 6.4
BBP: 5.6

Last trading day shows a doji pattern. DMI indicates an upward trend with the ADX at 69, +DI at 44, -DI at 2.25. Based on the 1 month pattern, PIP could currently be on its 5th elliot wave, so a correction is very possible in the next week.

Strategy: Wait for results of 1st trading half day. If stock begins to correct, buy on dips/below 5.4. If not, buy below 5.6.