Emerging Plays – Why JG Summit (JGS – P7.80) Deserves a Better Valuation
Two weeks ago, I wrote about how Manila Water (MWC – P7.70) is emerging as the utility play vice MERALCO (MERB – P22.00). Please check http://bigbigtrade.blogspot.com/2006/05/why-i-will-buy-manila-water-mwc-p650.html . This week, lets see why JGS has emerged as the conglomerate play sans Benpres (BPC – P1.26).
In an ironic twist, we are seeing a switch to “Gokongwei” premium vis-à-vis a “Lopez” discount. Recently, both conglomerates offered their shares to the public. First Generation (FGEN - P50.50) traded down on opening day whilst Universal Robina (URC – P24.0) traded up during its listing.
Obviously, the market voted with their dollars. JGS is trading at a 10-year high whilst Benpres is trading at 88% off its peak. How the fortunes of these two conglomerates have moved in opposite directions is one for the books. In 1998, both companies were riding high when their stake in PCI Bank was sold for US$800.0m.
A quick look at JGS shows that the stock is trading at 22% below its book value of P10.0. I do believe that this valuation discrepancy cannot continue since the company has proven its ability to grow shareholder wealth. Here are some examples:
1.) It bought back close to 350m URC shares when the stock was trading below P6.0. Recently, it placed out the block for P6.0bn generating close to P4.0bn in investment gains.
2.) In 1999, JGS bought a 23% stake in UIC – a Singapore based real estate company for S$310.0m. The stake is now worth S$452.0m. However, what is more important is that JGS was able to reallocate its assets overseas when the local currency was trading at P40 to US$1.0. This allows the company to ride out the depreciation of the Peso.
Recently, investors snapped up US$300m worth of JGS bonds. The offering was 5x oversubscribed. On the other hand, URC and RLC continue to outperform the market. Shares of both companies are up 10-folds since 2003 and is now trading at a premium to the market. URC trades at 17x whilst RLC is priced at 25x versus the 15x PER of the market.
I guess, all these point to the fact that the market is willing to pay a premium on Gokongwei companies. I guess it is a matter of time before they start paying a premium on JGS and thus zero out the valuation discrepancy. At the least, JG should be trading at par with its book or about P10.0 per share. Longer term, I do believe that it should be trading near its Net Asset of Value (NAV) of P12.0 per share.
In an ironic twist, we are seeing a switch to “Gokongwei” premium vis-à-vis a “Lopez” discount. Recently, both conglomerates offered their shares to the public. First Generation (FGEN - P50.50) traded down on opening day whilst Universal Robina (URC – P24.0) traded up during its listing.
Obviously, the market voted with their dollars. JGS is trading at a 10-year high whilst Benpres is trading at 88% off its peak. How the fortunes of these two conglomerates have moved in opposite directions is one for the books. In 1998, both companies were riding high when their stake in PCI Bank was sold for US$800.0m.
A quick look at JGS shows that the stock is trading at 22% below its book value of P10.0. I do believe that this valuation discrepancy cannot continue since the company has proven its ability to grow shareholder wealth. Here are some examples:
1.) It bought back close to 350m URC shares when the stock was trading below P6.0. Recently, it placed out the block for P6.0bn generating close to P4.0bn in investment gains.
2.) In 1999, JGS bought a 23% stake in UIC – a Singapore based real estate company for S$310.0m. The stake is now worth S$452.0m. However, what is more important is that JGS was able to reallocate its assets overseas when the local currency was trading at P40 to US$1.0. This allows the company to ride out the depreciation of the Peso.
Recently, investors snapped up US$300m worth of JGS bonds. The offering was 5x oversubscribed. On the other hand, URC and RLC continue to outperform the market. Shares of both companies are up 10-folds since 2003 and is now trading at a premium to the market. URC trades at 17x whilst RLC is priced at 25x versus the 15x PER of the market.
I guess, all these point to the fact that the market is willing to pay a premium on Gokongwei companies. I guess it is a matter of time before they start paying a premium on JGS and thus zero out the valuation discrepancy. At the least, JG should be trading at par with its book or about P10.0 per share. Longer term, I do believe that it should be trading near its Net Asset of Value (NAV) of P12.0 per share.
posted by jack galt at
11:01 PM
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