Some stock stories: RCBC + CMT
RCBC (RCB – P21.0) Recapitalization and M&A play
The Philippine Star come out with a story saying that RCBC will issue P1.0bn preferred convertible bonds and that one if its major shareholder; Bank of Tokyo will be selling its 17% stake in the bank.
http://www.philstar.com/philstar/NEWS200611060709.htm
The writings are clearly on the wall. This gives me two more reasons to buy RCBC. First, I expect the conversion price for the preferred convertible bond offering to be much higher than RCBC’s current share price. Second, Bank of Tokyo (BOT) will not likely sell at these levels.
RCBC is trading at 1.0x Price to Book (PBV). Relatively, It is the cheapest bank in the sector. While the bank has a below average asset quality, the recent recapitalization will likely drive valuations higher. Last month, the bank successfully raised US$100m (P5.bn) Tier 1 capital. This effectively expands its capital base by 40% therefore easing any short-term capital crunch.
So my gut feel is that for any deal – either a convertible bond offer or divesture by BOT, to materialize RCBC should be priced near 1.6x PBV or roughly equivalent to the valuation of Equitable PCI (EPCI – P72.50) when the SM Group did a tender last month. At those valuations, RCBC is easily worth P28/share.
Seacem (CMT – P.54) and Republic Cement (RCM – P2.70) arbitrage
A lot of my readers are asking how to price CMT vis-à-vis RCM. So here is a simple computation.
CMT owns 1.55bn RCM shares. Effectively, the stake is worth P4.2bn with RCM trading at P2.70. So the implied value of RCM in CMT is about P.64/share. To put a ratio into the relationship, 4.2 CMT shares equals 1 RCM share. So you simple divide the prevailing price of RCM by 4.2 to get the fair value of CMT.
As mentioned in my previous entries, I am long on both RCBC http://bigbigtrade.blogspot.com/2006/07/why-cost-of-equity-matters-rcbc-rcb.htm
and RCM http://bigbigtrade.blogspot.com/2006/05/why-i-bought-republic-cement-rcm-p124.html . I believe that these two counters still have a lot of value waiting to be realized.
The Philippine Star come out with a story saying that RCBC will issue P1.0bn preferred convertible bonds and that one if its major shareholder; Bank of Tokyo will be selling its 17% stake in the bank.
http://www.philstar.com/philstar/NEWS200611060709.htm
The writings are clearly on the wall. This gives me two more reasons to buy RCBC. First, I expect the conversion price for the preferred convertible bond offering to be much higher than RCBC’s current share price. Second, Bank of Tokyo (BOT) will not likely sell at these levels.
RCBC is trading at 1.0x Price to Book (PBV). Relatively, It is the cheapest bank in the sector. While the bank has a below average asset quality, the recent recapitalization will likely drive valuations higher. Last month, the bank successfully raised US$100m (P5.bn) Tier 1 capital. This effectively expands its capital base by 40% therefore easing any short-term capital crunch.
So my gut feel is that for any deal – either a convertible bond offer or divesture by BOT, to materialize RCBC should be priced near 1.6x PBV or roughly equivalent to the valuation of Equitable PCI (EPCI – P72.50) when the SM Group did a tender last month. At those valuations, RCBC is easily worth P28/share.
Seacem (CMT – P.54) and Republic Cement (RCM – P2.70) arbitrage
A lot of my readers are asking how to price CMT vis-à-vis RCM. So here is a simple computation.
CMT owns 1.55bn RCM shares. Effectively, the stake is worth P4.2bn with RCM trading at P2.70. So the implied value of RCM in CMT is about P.64/share. To put a ratio into the relationship, 4.2 CMT shares equals 1 RCM share. So you simple divide the prevailing price of RCM by 4.2 to get the fair value of CMT.
As mentioned in my previous entries, I am long on both RCBC http://bigbigtrade.blogspot.com/2006/07/why-cost-of-equity-matters-rcbc-rcb.htm
and RCM http://bigbigtrade.blogspot.com/2006/05/why-i-bought-republic-cement-rcm-p124.html . I believe that these two counters still have a lot of value waiting to be realized.
posted by jack galt at
11:21 PM
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