ruthchirie
New member
DISCLAIMER: I HOLD THIS IN MY PORTFOLIO. THIS IS ALSO NOT INVESTMENT ADVICE
If you want a version with charts and pictures, please check out my substack. Link is here: https://riverhorsedigest.substack.com/p/deep-dive-pryce-corp?sd=pf
After quite a while, I am back. Delays were due to me figuring out how to Data Viz, and my inability to research into ANS and create output I would be happy with (I will get to it, eventually). Instead, we look at the only listed LPG distributor, Pryce Corp.
Shout-out to @palmtreelife for the recommendation.
What is Pryce Corp?
Pryce Corp (formerly Pryce Properties Corporation) is a holding company for with three different business units. Pryce Corp is primarily involved in the development of memorial parks and sale of memorial lots in Mindanao. There is Pryce Gases, a fully owned subsidiary which sells and distributes LPG and other gases. Last, there is Pryce Pharmaceuticals, Inc., a wholesaler and distributor of private branded multi-vitamins and some over-the-counter generic drugs.
Who owns Pryce Corp?
This was a surprisingly painful exercise. On paper, Pryce Corp trades at 74.54% Public Float. The remainder is owned by the company’s various associates (24.2745%), and it’s directors (3.1876%). That should mean large volumes and a lot of liquidity, right? Nope. It only trades around PHP 80k worth of shares daily.
Another 50% of PPC is held by Guild Securities Inc., and I have no leads as to who owns it. Would value help here.
PPC’s largest individual shareholder is Salvador P. Escano, who is also president of the company. A former banker, he’s overseen the Pryce Group since 1981. He’s a very low key owner, and his name hasn’t been in any relevant news items.
How does it make its money?
While I mentioned above that the company was originally a real estate company, in essence it’s an LPG company. LPG sales generate 93.67% of revenues. It sells LPG to both customers and businesses. Bulk of its business is in the Vis-Min, with plans of expanding into Luzon. Margins are generally narrow, due to the nature of the goods being sold.
Valuation
DCF:
Can’t compare PPC to others because there no analogous companies locally. However, what we can do is compare PPC to itself. In terms of P/E and P/B, it’s at its cheapest in five years. However, that tells us nothing about the price or how much the company is worth.
I’m fairly confident in my DCF inputs, and I don’t particularly mind if there are no comparable to be made. Even at a generous 33% margin of safety from the DCF, it would still trade at around a 20% upside, even with conservative assumptions.
Other Factors:
As I’ve stated before, there’s a lot of other factors aside from valuation that make a stock a good pick or not.
Market Cap:
PHP 9.8B; it’s either a small or medium sized company. Some people use PHP 5B, but I’d be more inclined to use a cut-off of PHP 10B. Regardless, in terms of size in the market it’s the smallest exposure to companies who sell LPG. The rest are unlisted (Isla) or part of larger groups (PNX/Petrcon). Smaller Cap is generally better than larger cap.
Momentum:
Down 20% over 5 years; and down 8% YTD. While it would be easy to attribute this to global conditions, I’d argue this still shows a lack of confidence in the company to a degree by the market. If we used total returns, then we get a slight better. It’s 12% down over 5 years and down 9%. Better than the index, but not spectacular. Not too bullish on the any near term price movements, as the macroeconomic conditions are lacking.
Business Model:
LPG sales are less volatile than gasoline sales; even if people are stuck at home under lock-down, they still needed to cook food. For example, this company was dented by the lockdown in terms of sales or net income, with both rising despite the challenges. If we compare its earnings to other companies which sell LPG, it’s much more stable. It’s because of their lack of exposure to the gasoline and other fuels market.
Bull Case
As I stated, above, it’s a company I’ve got some confidence in. I’ve put my money where my mouth is on this one. Why?
First, it’s got a decent growth story. It’s managed to grow revenues by around 8% y-o-y. This year, for H1 it beat it’s 2021’s H1 by 39%. I have a decent belief that the company can grow its business, given that it’s only gotten into expanding into Luzon.
While earnings are down vs last years (down 9% H1 2022 vs H1 2021), it’s more due a decrease in the amount of proceeds from the sale of financial instruments, they made PHP 1B less than last year. It’s also facing headwinds due to inflationary pressures on fuel. However, the companies operating income grew by 30% in H1 2022 vs H1 2021, and I expect the trend to continue. What we could see is reduced net income, and an increase operating income. Speaking of increases, PPC is also quite good at increasing its free cash flow, increasing it 8.7% Y-o-y over 5.
Second, it’s trading at attractive multiples. It’s currently trading at P/B of 0.69 and is trading at a P/E of 5.65. It’s also got a dividend yield of 5.15%. Low multiples are not always a good thing, but unlike other bigger companies with nos. at those levels, PPC’s management believes they’re undervalued. They’ve allocated PHP 1B to buy shares at undervalued prices, and they’ve already spent PHP 0.636B of it. While I would like to see insiders buy in as well,
Third, it returns capital back to shareholders. PPC’s got a fairly stable dividend policy (0.24 per share, per year). I’m not the biggest fan of dividends (due to the tax and the fees you reinvest) but they are a source of returns.
What I do like, is that it also buys back shares. From 2017 to 2022, it’s managed to reduce the total outstanding shares by 10%. That’s quite aggressive in the Philippines. Of the companies locally listed companies, no one’s been more aggressive at cannibalizing their own shares.
Both returns of capital are funded internally, and the company hasn’t needed to take on debt to fund either.
Last, there was an inquiry into the SEC if they could spin of their real estate operations into a REIT. (https://www.sec.gov.ph/issuance/opinion-no-22-10re-real-estate-investment-trustreit/). I like this. I like it when companies spin of business which aren’t core to their main revenue drivers. The spin-off can generate cash the company can use to reinvest in the shareholders, and it gets assets off the balance sheet, without affecting core operations.
Bear Case
As I’ve presented a bull case, let’s present a bear case for PPC. LPG is unsexy and is unlikely to attract any large buyers or even retail buyers. It will never be hyped like PHA or DITO. Due to a lack of liquidity, the price can still be manipulated by a single large buyer. Additionally, due to its lack of size, there is less room for institutional shareholders to come in.
The above can mean one thing, stagnant stock prices. PPC share price will be kept afloat only buy stock buybacks. Last a stagnant dividend policy means that the dividend in real terms gets smaller Y-o-Y.
That also says nothing about the LPG market. Maybe inductions will take of as the country’s grid improves and we urbanize more. Maybe new competitors enter and wipe the floor with them. There is no “moat” for LPG companies. It’s only 4th in the market after all.
**
Final Note:**
Buy if:
If you want a version with charts and pictures, please check out my substack. Link is here: https://riverhorsedigest.substack.com/p/deep-dive-pryce-corp?sd=pf
After quite a while, I am back. Delays were due to me figuring out how to Data Viz, and my inability to research into ANS and create output I would be happy with (I will get to it, eventually). Instead, we look at the only listed LPG distributor, Pryce Corp.
Shout-out to @palmtreelife for the recommendation.
What is Pryce Corp?
Pryce Corp (formerly Pryce Properties Corporation) is a holding company for with three different business units. Pryce Corp is primarily involved in the development of memorial parks and sale of memorial lots in Mindanao. There is Pryce Gases, a fully owned subsidiary which sells and distributes LPG and other gases. Last, there is Pryce Pharmaceuticals, Inc., a wholesaler and distributor of private branded multi-vitamins and some over-the-counter generic drugs.
Who owns Pryce Corp?
This was a surprisingly painful exercise. On paper, Pryce Corp trades at 74.54% Public Float. The remainder is owned by the company’s various associates (24.2745%), and it’s directors (3.1876%). That should mean large volumes and a lot of liquidity, right? Nope. It only trades around PHP 80k worth of shares daily.
Another 50% of PPC is held by Guild Securities Inc., and I have no leads as to who owns it. Would value help here.
PPC’s largest individual shareholder is Salvador P. Escano, who is also president of the company. A former banker, he’s overseen the Pryce Group since 1981. He’s a very low key owner, and his name hasn’t been in any relevant news items.
How does it make its money?
While I mentioned above that the company was originally a real estate company, in essence it’s an LPG company. LPG sales generate 93.67% of revenues. It sells LPG to both customers and businesses. Bulk of its business is in the Vis-Min, with plans of expanding into Luzon. Margins are generally narrow, due to the nature of the goods being sold.
Valuation
DCF:
- Discount Rate: 10%. CAGR of the PSEI.
- Scenario 1: Expected Case: 8.0% growth in earnings. This matches their historical growth rate. Terminal Multiple of 5.5 or current P/E.
- Scenario 2: Ultra-Bull Case: 10.0% growth in earnings. Terminal Multiple of 12 or highest historical P/E.
- Scenario 3: Ultra-Bear Case: 4% growth in earnings. It underperforms the LPG market as whole, or it’s costs spiral, depressing margins. Terminal Multiple of 3 to reflect lack of hope in company.
Can’t compare PPC to others because there no analogous companies locally. However, what we can do is compare PPC to itself. In terms of P/E and P/B, it’s at its cheapest in five years. However, that tells us nothing about the price or how much the company is worth.
I’m fairly confident in my DCF inputs, and I don’t particularly mind if there are no comparable to be made. Even at a generous 33% margin of safety from the DCF, it would still trade at around a 20% upside, even with conservative assumptions.
Other Factors:
As I’ve stated before, there’s a lot of other factors aside from valuation that make a stock a good pick or not.
Market Cap:
PHP 9.8B; it’s either a small or medium sized company. Some people use PHP 5B, but I’d be more inclined to use a cut-off of PHP 10B. Regardless, in terms of size in the market it’s the smallest exposure to companies who sell LPG. The rest are unlisted (Isla) or part of larger groups (PNX/Petrcon). Smaller Cap is generally better than larger cap.
Momentum:
Down 20% over 5 years; and down 8% YTD. While it would be easy to attribute this to global conditions, I’d argue this still shows a lack of confidence in the company to a degree by the market. If we used total returns, then we get a slight better. It’s 12% down over 5 years and down 9%. Better than the index, but not spectacular. Not too bullish on the any near term price movements, as the macroeconomic conditions are lacking.
Business Model:
LPG sales are less volatile than gasoline sales; even if people are stuck at home under lock-down, they still needed to cook food. For example, this company was dented by the lockdown in terms of sales or net income, with both rising despite the challenges. If we compare its earnings to other companies which sell LPG, it’s much more stable. It’s because of their lack of exposure to the gasoline and other fuels market.
Bull Case
As I stated, above, it’s a company I’ve got some confidence in. I’ve put my money where my mouth is on this one. Why?
First, it’s got a decent growth story. It’s managed to grow revenues by around 8% y-o-y. This year, for H1 it beat it’s 2021’s H1 by 39%. I have a decent belief that the company can grow its business, given that it’s only gotten into expanding into Luzon.
While earnings are down vs last years (down 9% H1 2022 vs H1 2021), it’s more due a decrease in the amount of proceeds from the sale of financial instruments, they made PHP 1B less than last year. It’s also facing headwinds due to inflationary pressures on fuel. However, the companies operating income grew by 30% in H1 2022 vs H1 2021, and I expect the trend to continue. What we could see is reduced net income, and an increase operating income. Speaking of increases, PPC is also quite good at increasing its free cash flow, increasing it 8.7% Y-o-y over 5.
Second, it’s trading at attractive multiples. It’s currently trading at P/B of 0.69 and is trading at a P/E of 5.65. It’s also got a dividend yield of 5.15%. Low multiples are not always a good thing, but unlike other bigger companies with nos. at those levels, PPC’s management believes they’re undervalued. They’ve allocated PHP 1B to buy shares at undervalued prices, and they’ve already spent PHP 0.636B of it. While I would like to see insiders buy in as well,
Third, it returns capital back to shareholders. PPC’s got a fairly stable dividend policy (0.24 per share, per year). I’m not the biggest fan of dividends (due to the tax and the fees you reinvest) but they are a source of returns.
What I do like, is that it also buys back shares. From 2017 to 2022, it’s managed to reduce the total outstanding shares by 10%. That’s quite aggressive in the Philippines. Of the companies locally listed companies, no one’s been more aggressive at cannibalizing their own shares.
Both returns of capital are funded internally, and the company hasn’t needed to take on debt to fund either.
Last, there was an inquiry into the SEC if they could spin of their real estate operations into a REIT. (https://www.sec.gov.ph/issuance/opinion-no-22-10re-real-estate-investment-trustreit/). I like this. I like it when companies spin of business which aren’t core to their main revenue drivers. The spin-off can generate cash the company can use to reinvest in the shareholders, and it gets assets off the balance sheet, without affecting core operations.
Bear Case
As I’ve presented a bull case, let’s present a bear case for PPC. LPG is unsexy and is unlikely to attract any large buyers or even retail buyers. It will never be hyped like PHA or DITO. Due to a lack of liquidity, the price can still be manipulated by a single large buyer. Additionally, due to its lack of size, there is less room for institutional shareholders to come in.
The above can mean one thing, stagnant stock prices. PPC share price will be kept afloat only buy stock buybacks. Last a stagnant dividend policy means that the dividend in real terms gets smaller Y-o-Y.
That also says nothing about the LPG market. Maybe inductions will take of as the country’s grid improves and we urbanize more. Maybe new competitors enter and wipe the floor with them. There is no “moat” for LPG companies. It’s only 4th in the market after all.
**
Final Note:**
Buy if:
- You like non-index names
- You don’t mind lower-margin businesses
- You prefer buybacks over dividends
- You want a “value” stock
- You’re okay with waiting out for a while for the price to correct
- You want larger names
- You want high margin business
- You want high dividend growth
- You want high growth stocks
- You expect return in the next year or two
