Money (Off) the table and some random toughts
Ouch!!
The past weeks have been painful to investors - ouch!!! Money were made and lost in a matter of weeks. I guess the writings are on the wall - at best the market will consolidate within the 2,100 - 2,400 range. At worst, we might trade lower and hit 1,800. So far, I am still bias towards the market consolidating and this should give investors an opportunity to reposition their portfolio. My only worry is that liquidity might dry up. The P900m traded last Friday is quite worrisome. Liquidity, more than anything else is the key driver of the market. I have essentially kept my portfolio intact except that I have reduced my holdings by 25% equally across all my holdings. I have taken money off the table in order to realize some of the gains I made this year.
Gold.... gold ... gold
So will gold still trade higher? I am not an expert on this but I have been following the commentary of Paul Van Eeden. Let me share with you some of his comments.
Please check http://www.paulvaneeden.com/displayArticle.php?articleId=157 and http://www.paulvaneeden.com/displayArticle.php?articleId=158. What Paul is saying is that gold will go up since he does not believe that the recent rise in US$ is sustainable. Gold trades "contra" US$. The recent drop in gold price is driven by the rally in the US$. The slowing US economy will negatively impact the dollar in the long run. However, he is not bullish on other metals such a copper, silver since a slowing global economy will crimp demand for these metals.
RCM
The market ignored the 1Q06 earnings release of RCM. The good news was buried deep in the bear pen. RCM reported that earnings in 1Q06 rose 88% to P294.0m. If we annualize this figure, full year earnings can reach P1.4bn. So at current levels, the counter is trading at 6.4x PER. However, what is more important is to see the cash flow of the company. In 2005, the company reduced its debt by P1.5bn. In 1Q06, total debt repayments reached P558m. So for the past 5 quarters, the company was able to retire P2.0bn in debt. In terms of valuation, debt reduction should translate to incremental equity value. On a per share basis, the P2.0bn should translate to roughly P.30 incremental value. Looks like the market has not factored this in.
Beyond these good numbers. the management of RCM should look into ways to improve the liquidity of the stock. The most obvious thing to do is to distribute the RCM shares held by South East Asian Cement Holdings (CMT) to its shareholders. This should free up some 300m RCM shares to the market. I wonder why management has not thought about this. It does not make sense to have two listed companies for one operating asset.
The past weeks have been painful to investors - ouch!!! Money were made and lost in a matter of weeks. I guess the writings are on the wall - at best the market will consolidate within the 2,100 - 2,400 range. At worst, we might trade lower and hit 1,800. So far, I am still bias towards the market consolidating and this should give investors an opportunity to reposition their portfolio. My only worry is that liquidity might dry up. The P900m traded last Friday is quite worrisome. Liquidity, more than anything else is the key driver of the market. I have essentially kept my portfolio intact except that I have reduced my holdings by 25% equally across all my holdings. I have taken money off the table in order to realize some of the gains I made this year.
Gold.... gold ... gold
So will gold still trade higher? I am not an expert on this but I have been following the commentary of Paul Van Eeden. Let me share with you some of his comments.
Please check http://www.paulvaneeden.com/displayArticle.php?articleId=157 and http://www.paulvaneeden.com/displayArticle.php?articleId=158. What Paul is saying is that gold will go up since he does not believe that the recent rise in US$ is sustainable. Gold trades "contra" US$. The recent drop in gold price is driven by the rally in the US$. The slowing US economy will negatively impact the dollar in the long run. However, he is not bullish on other metals such a copper, silver since a slowing global economy will crimp demand for these metals.
RCM
The market ignored the 1Q06 earnings release of RCM. The good news was buried deep in the bear pen. RCM reported that earnings in 1Q06 rose 88% to P294.0m. If we annualize this figure, full year earnings can reach P1.4bn. So at current levels, the counter is trading at 6.4x PER. However, what is more important is to see the cash flow of the company. In 2005, the company reduced its debt by P1.5bn. In 1Q06, total debt repayments reached P558m. So for the past 5 quarters, the company was able to retire P2.0bn in debt. In terms of valuation, debt reduction should translate to incremental equity value. On a per share basis, the P2.0bn should translate to roughly P.30 incremental value. Looks like the market has not factored this in.
Beyond these good numbers. the management of RCM should look into ways to improve the liquidity of the stock. The most obvious thing to do is to distribute the RCM shares held by South East Asian Cement Holdings (CMT) to its shareholders. This should free up some 300m RCM shares to the market. I wonder why management has not thought about this. It does not make sense to have two listed companies for one operating asset.
posted by jack galt at
12:50 AM
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