Happy Tuesday, Barkada --
The PSE lost 75 points to 6290 ▼1.2%
Shout-out to all the Barkadans that took part in my
long-weekend Tweet: "You get P1 million, but you must buy and hold 1 PSE stock for one year. What do you buy?" I'll record all of the responses later today, and I've set a reminder to do a follow-up in a year to see what actually happened! If you want to take part, just click the Twitter link (
here) and leave your pick.
Back-to-back 4-day trading weeks, with most market metrics trending hard to the negative. We're in the belly of the Aughost beast. Press on.
- COMING UP: The week ahead
- REDC leaves the nest
- ACENA/B offer ends
- Jackson Hole summit in US
- Uh... that's it
- SPNEC (sort of) confirms talks with funds
- Phoenix FY22 net loss worsened by 263%
▌Main stories covered:
- [COMING_UP] The week ahead... Not much on the calendar for this week. According to my calculations, REDC’s stabilization fund will expire at the end of the trading day today, leaving the stock all on its own for the first time tomorrow. The ACENA and ACENB offer period will come to an end tomorrow, with the shares scheduled to list on September 1. In the US, the market is expecting to hear financial results from some major retailers, which could provide some feedback on the health of the US consumer, and many will be watching as central bankers and politicians meet at the annual Jackson Hole Economic Symposium. The US Federal Reserve chairman will be giving a speech at that event that could generate some headlines.
- MB: I’m not expecting a lot of action out of the REDC stabilization expiry, since they’re about 5% above their IPO price and they haven’t once traded below that price. Since the stabilization fund can only act when the price is below the IPO offer, that means that whatever stabilization that this stock has enjoyed since its IPO has been natural, organic, and market-driven. That’s not a guarantee that the price will hold once the possibility of artificial demand is removed, but it is a healthy sign that holders might not have to deal with an AllHome [HOME 1.58 ▼1.3%; 46% avgVol] situation. As for the greater market, does it suck because of Aughost, or are we talking so much about Aughost because the market sucks? Hard to say. But there are just not a lot of market drivers that I see on the short- or medium-term horizons that look spicy enough to shock the market’s heart back to life. As always I’m going to leave my mind open to the possibility of change, because I’m wary of developing a form of learned helplessness that would cause me to process new information through a defeatist lens. Still, I’m not biting on much of anything until I see some strength, which I don’t really see any of right now.
- [NEWS] SPNEC “in talks” with fund managers for private placement... SP New Energy [SPNEC suspended] confirmed reporting that it is “in talks” with “various stakeholders, advisers, and potential investors” in response to an article that said SPNEC’s owner and CEO, Leandro Leviste, was working with fund managers on a potential private placement share sale. SPNEC needs to sell at least 2.12 billion common shares to a third-party buyer to comply with the PSE’s 20% minimum public ownership rule and have its trading suspension lifted that has been in place for the last 80 days. SPNEC said that is is “preparing to submit” a “Plan of Action” for the stock to resume trading, which SPNEC said will include a request for a “temporary minimum public ownership exemption”.
- MB: What was originally spun as a mild inconvenience for SPNEC bagholders has ballooned into a suspension that has lasted for over 11 weeks (over 20% of the trading year). Discontent with the situation is growing, and I’ve seen an uptick in messages from concerned shareholders since the start of August. Deals take time – even under perfect circumstances – and especially when the circumstances are (as they are here) far from perfect. If one wanted to try to read between the lines, SPNEC’s avoidance of talking directly about the main point of the article, that SPNEC was in talks with fund managers for the private placement, could say that SPNEC knows its inability to acquire an investment from another strategic investor is a negative sign. Financial investors (like funds) tend to be return-oriented with a defined time-horizon for that return, meaning that SPNEC might need to give a fund better terms to sweaten the pot. They’re less “sticky” than a strategic like Metro Pacific [MPI 5.05 ▲0.2%; 81% avgVol] might be, meaning that a fund isn’t likely to be a “ride or die” partner, increasing the risk of some mass selling event like what Converge [CNVRG 8.94 ▼3.9%; 109% avgVol] experienced when its fund, Warburg Pincus, unceremoniously exited its CNVRG position suddenly and without notice. It’s not automatic that a deal with a fund is bound to be worse for SPNEC and for its shareholders, but to me it’s not a great sign considering how SPNEC soured its relationship with Ricky Razon’s Prime Infra, has already seemingly maxed out its relationship with MPI, and is appealing for exemption from the minimum float rules to lift the suspension. All that tells me that SPNEC does not have the high ground in this fight, and will likely need to “give” more to the eventual buyer to get out of this mess of its own doing. I could be wrong, though. Maybe SPNEC is just working on a master-stroke of a deal that will build a foundation for growth that will support the company for decades to come. Like always with this stock, we just don’t know, because the plan isn’t public and whatever strategy we know is subject to substantial change.
- [NEWS] Phoenix Petroleum lost ₱3.2 billion in FY22... Phoenix Petroleum [PNX suspended] finally submitted its FY22 Annual Report and revealed that it lost ₱3.2 billion, down 263% y/y from its re-stated FY21 loss of ₱0.9 billion. PNX’s revenue was down nearly 4% to ₱127 billion, and while PNX’s costs and finance charges were also somewhat reduced as compared to FY21, the balance is a shocking ₱3.2 billion shortfall. The company’s statement of financial position shows that it has roughly ₱4.2 billion in cash and cash equivalents, and a total of ₱32 billion in current assets, against ₱48.6 billion in current liabilities, including ₱29.2 billion in “interest-bearing loans and borrowings.” PNX’s auditor flagged this situation as a “key audit matter”, and said that management’s assessment that there are “no material uncertainties” around the company’s “going concern assumptions” involves what the auditor referred to as “complex judgment and a high degree of uncertainty.” PNX has been suspended from trading since May 18 for Dennis Uy’s inability to generate this annual report in accordance with the PSE’s rules.
- MB: What has happened to Dennis Uy is the result of poor risk management. If this were 19th century England, I’m sure there’d be nursery rhymes written about it to warn future wannabe tycoons about the dangers of debt-fueled acquisition sprees and tying ones self too closely to a single source of power. “Don’t build on debt or trust just one name / For business is real and not just a game / Dennis Uy’s tale is one to recall / Lest, like his empire, you too might fall.” Catchy, right? Anyway, lost in all this is the restatement of PNX’s FY21 results, which went from a loss of ₱462 million to a loss of ₱886 million. While the PNX management team might have a plan, the auditor noted that the risks that such a plan has to address are ones that are largely out of the company’s control, such as global oil prices (which are expected to rise now through the winter), the recovery of PH-based businesses post-COVID, and the existing balance sheet of the company which is “highly debt-leveraged” and exposes PNX to “increasing liquidity risk”.
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