Happy Monday, Barkada --
The PSE lost 13 points to 7112 ▼0.2%
Thanks to
Jing for the meme love, and to
Tony R. and
Kevin for sending me a heads-up that
CTS Global's IPO application has been approved by the SEC.
Shout-outs to misunderstood, Anamay Legani, Julius Palamos, Althea Savannah, avphajzsam, Stephen Chiong, Aman Sotto Pizarro, CSS, FChFP, CWP, CEPP, Joe Latham, meloi, Spyfrat's Call, Just’n, Palaboy Trader, Rolex Jodieres, mArQo, ash1eyr10t, psestocktipsdaily, Lance Nazal, Gary Manalo, Evolves Capital, Inc., Jose Mateo, Lysender, Chip Sillesa, and Jing for the retweets, and to Lhen Baradiwan, Froilan Ramos, Richard Paul Francisco, Padilla GJ, Mike Ting, and Evolves.co for the FB shares.
- Bank of Commerce looking cheap relative to current PSE peer comparables
- Medilines Distributors is just the worst in a recent pack of pretty ugly IPOs
- PLUS: Quick takes on PHR, ACEX, and Ovialand
▌Top 3 MB indices:
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▌Bottom 3 MB indices:
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Hedgy Metal ▼4.60%
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▌Main stories covered:
- [ANALYSIS] Bank of Commerce [BNCOM 12.00 pre-IPO] looking cheap relative to current PSE peer comparables... On Friday, the San Miguel [SMC 102.90 ▲1.08%] bank set its per-share price at ₱12.00/share, a 4% discount from BNCOM’s maximum price of ₱12.50/share. Now that BNCOM has set its price, we can take a closer look at how the bank stacks up against its peers that are already traded on the PSE. The ₱12.00/share price and post-IPO float will give BNCOM an initial marketcap of approximately ₱16.8 billion, which puts it within reach of EastWest Bank’s [EW 8.43 ▼1.98%] ₱19.3 billion marketcap, and Asia United Bank Corp’s [AUB 43.40 ▲0.46%] ₱20.9 billion marketcap. Philippine National Bank [PNB 19.68 ▼0.51%] is the next highest after AUB, with a marketcap of ₱30.1 billion, but that’s nearly double the size of baby BNCOM’s IPO size.
- Price-to-Earnings Ratio (P/E): This metric takes the stock’s price, and divides that by the earnings-per-share, to arrive at what is called the P/E Ratio, or P/E “multiple”. The higher the number, the more expensive the stock price is relative to the share of the company’s earnings that it represents. In this case, BNCOM’s P/E multiple is 1.71, which means that its stock price (₱12.00) is 1.71 times its earnings per share. EW’s P/E is 3.23. AUB’s P/E is 9.56. PNB’s P/E is slightly lower, at 1.53. This metric suggests that at the offer price, BNCOM is relatively cheap compared to its peers.
- Price-to-Book Ratio (P/B): This divides the company’s marketcap by its book value. The higher the number, the more expensive the stock price is relative to the book value (liquidation value) of the stock. Here, BNCOM’s P/B is 0.81, EW’s P/B is 0.32, AUB’s P/B is 0.57, and PNB’s P/B is 0.20. While this metric suggests that the price might be more expensive than its peers, the P/B is still below 1, so the marketcap still suggests that the company is selling at below its liquidation value.
- Debt-to-Equity Ratio (D/E): This divides the company’s total liabilities by its shareholder equity to get a feel for how much debt/leverage a company is using. The higher the number, the greater the debt risk. Here, BNCOM’s D/E is 9.2, EW’s D/E is 22.6, AUB’s D/E is 47.4, and PNB’s D/E is 101.0. This metric suggests that BNCOM is a safer investment relative to its peers with respect to outstanding leverage/liabilities.
- MB: It will be interesting to see what kind of reception this IPO gets, as we haven’t seen the IPO of a bank on the PSE in a really long time. As discussed in an earlier writeup about this deal, this has the posture of an offering configured for growth; nearly 90% of the deal is primary, meaning that 90% of the money raised will go directly to BNCOM to grow its business. And it’s not like this bank will struggle for business either, considering that it has a large book of existing business with SMG Group companies, and all of the opportunities that come from being a long-time component of one of the country’s largest and most diverse conglomerates. The comparables that we talked about make it look like BNCOM is coming to the market with a reasonably inexpensive price-tag a with relatively low debt risk; add to that a plan to grow its loans book, a new universal license, and “all in the family” recurring business that it should have access to through the SMC group, and I think we’ve got the makings of a non-tragic bank IPO. Whether the market will agree, and whether it will agree in the long term, is another story entirely.
- [UPDATE] Medilines Distributors [MEDIC 0.94 ▼1.05%] is just the worst in a recent pack of pretty ugly IPOs... One look at the IPO Tracker is enough to see that the last four months of IPOs is just filled with red. Sure, the first-day performance has been fine; the only outright first-day tragedy was MEDIC’s first day horror-show. But of the six IPOs that we’ve had since the end of Q3, only two are trading above their IPO price: Solar Philippines NEC [SPNEC 1.81 ▼2.16%], and Citicore Energy REIT [CREIT 2.69 ▲0.37%]. The rest are all swimming in a sea of red. Manny Villar’s AllDay Marts [ALLDY 0.47 ▼2.08%] started its life hitting the ceiling in what PNB Capital (the underwriter) called “overwhelming demand”. Manny Villar himself said that the brisk uptake of the shares “validates this price”. It was oversold going into the IPO and had a stabilization fund. Since the IPO, however, the stock is down over 21%. MEDIC was next, and we all should remember how that went: terribly, from the very beginning, to the very now. It had an oversubscribed institutional tranche and no stabilization fund. It’s currently down 59%. After that, SPNEC was born, and it’s done very well for itself. No problems. Oversubscribed with no stabilization fund. It’s up 81%. After SPNEC, though, came Haus Talk [HTI 0.96 unch]. Possibly oversubscribed. No stabilization fund. Despite a strong real estate market and voluminous demand for lower- and middle-income housing, HTI is currently down a brutal 36%. Next came Figaro Coffee [FCG 0.59 ▼1.67%], which is actually Angel’s Pizza, which is actually just a Cirtek [TECH 3.36 ▼1.18%] sister company. It wasn’t oversubscribed, but it did have a stabilization fund. The last IPO, CREIT, was oversubscribed and had a stabilization fund, and finished its first day up 11%. It’s now at +5% after a recent rough ride for REITs.
- MB: If there’s a takeaway to be had, it’s that IPOs are not guarantees of anything. It’s possible to take a good business with strong prospects, get an oversubscribed IPO offer period, and still watch in horror as the stock tanks on the IPO day or after the stability fund expires. I don’t mean to say that what happens with IPOs is necessarily random, but I think that it’s important for all IPO investors to consider “the other side” when consuming the IPO company’s promotional materials (and yes, a prospectus should be considered promotional material). On the topic of expectations, I think it’s also important to talk for a second about stabilization funds. They provide some downside protection, though it is important to remember that the protection provided from a stability fund is not absolute. Remember the IPO of AREIT [AREIT 47.40 ▼4.05%]? It had a stability fund, but the downward selling pressure on the stock was so hard that the stabilization agent couldn’t keep the price from dipping below the IPO offer price, where it stayed for nearly two months before going on an epic rip. Another limitation of the stability fund is time, as it is only active for the first month, or until the quota of stock has been exhausted. After that point, the stock is on its own. Unless there is significant organic demand for the stock, the post-stability fund price will probably drop. This was most recently seen with FCG, where the stock price remained above the IPO offer for the entire lifespan of the stability fund, and dipped below the offer price (₱0.75/share) basically the day after the fund expired. The price has never recovered and is currently down more than 20% from the offer price, and down more than 35% from its post-IPO high of ₱0.92/share. I don’t say any of this to imply that Bank of Commerce’s [BNCOM 12.00 pre-IPO] stability fund (or any other stability fund for that matter) won’t be sufficient, or that the price will drop below offer once the fund expires; I bring it up only to adjust investor expectations about what a stability fund can do and what it can’t do. Don’t get me wrong: a stability fund is a great thing to have, and in a weak market or shaky offering, it can be a great source of liquidity for nervous IPO buyers looking to get out if things don’t immediately go super great.
- [NOTES] Quick takes from around the market...
- PH Resorts Group Holdings [PHR 1.03 ▼10.43%] is down 23% in the last week, after being up over 92% since the start of February. “Davao Dennis” Uy’s travel, tourism, and gaming company has pumped (and dumped) without any news or disclosures to drive the action. Volume has been exceptionally heavy, especially during February.
- ACE Enexor [ACEX 24.00 ▼8.05%] [link] will change its corporate name to ENEX Energy Corp., to “reflect the change in business address” and the company’s new focus on “energy transition”. Hopefully they change the ticker, too. Kind of an obvious play to go with “ENEX”, which I hope they do. Not sure how the change of business address was relevant, though.
- Ovialand [OLI] [link] plans to submit IPO paperwork to the SEC by the end of this month, for an IPO by the end of June. Doesn’t appear as though any of the details have changed from my interview with OLI’s CEO, Pammy Olivares-Vital back in November. I wonder if OLI’s approach has changed after watching Haus Talk [HTI 0.96 unch] hit the market and sink like a rock.
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EDIT: I think there are problems with the P/E calculation. I'll review and provide a correction tomorrow. Apologies.
