Win or Lose, Manila Water (MWC – P10.25) Wins
Strong price movement this week
I bought MWC again this week when the stock broke out of P9.50. I do believe that after consolidating for 4 months between P8.80 – P9.50 range, MWC is now ripe for a big move. Today, its share price rose to as high as P10.75, before correcting back to P10.25. I am certainly not afraid of the “shake-out”. Instead, I would take advantage of any weakness to add more to my position.
The price movement of MWC is a "textbook case" of a breakout. As a rule, if a stock broke out of a price range by at least 8%, it is a signal that its share price is heading to new levels. I guess, MWC is firmly supported at the P9.20 – P9.50 levels. So my downside is pretty much limited to 10%. On the other hand, a stock that makes new “highs” has better odds of reaching further “highs”. We have seen how Seacem (CMT – P.90), Holcim (HLCM – P7.20) and Republic Cement – (RCM – P3.70) make new highs after breaching their 52-week highs. I think this will be the same scenario for MWC.
Still undervalued
I firmly believe that MWC cannot continue to trade at these levels. As it is, MWC is only trading at 9.9x PER to 12/06 earnings. This undermines the value of the company. Currently, the market is trading at 15x PER to 12/06 earnings. Fairly valued, MWC should approximate the market PER. This should bring MWC to at least P15.0/share.
I do believe that If investors are paying market PER on companies that are generating less than 10% earnings growth, pretty soon they will realize that MWC is a bargain at single digit PER generating 25% earnings growth. Obviously, there is a valuation disparity that has to be corrected.
Win-win stock
Lastly, there are a lot of uncertainties on the upcoming bid for the West Zone franchise of Maynilad Water. MWC is one of three companies short-listed to bid for the concession. I guess this is partly the reason why its share price has underperformed the market.
However, I see it otherwise. In fact it is a win-win situation for MWC.
Note that MWC is an experienced player in the industry. They will not bid more than the “reasonable” economic return of the concession. So, if they do win, this will be an added bonus for MWC. Perhaps this will finally push the valuation of MWC at par with the market. If they lose, the only reason is that the other bidders overpaid. But this will also increase the implied value of both concessions including the East Zone that MWC currently owns.
So win or lose, MWC wins!
I bought MWC again this week when the stock broke out of P9.50. I do believe that after consolidating for 4 months between P8.80 – P9.50 range, MWC is now ripe for a big move. Today, its share price rose to as high as P10.75, before correcting back to P10.25. I am certainly not afraid of the “shake-out”. Instead, I would take advantage of any weakness to add more to my position.
The price movement of MWC is a "textbook case" of a breakout. As a rule, if a stock broke out of a price range by at least 8%, it is a signal that its share price is heading to new levels. I guess, MWC is firmly supported at the P9.20 – P9.50 levels. So my downside is pretty much limited to 10%. On the other hand, a stock that makes new “highs” has better odds of reaching further “highs”. We have seen how Seacem (CMT – P.90), Holcim (HLCM – P7.20) and Republic Cement – (RCM – P3.70) make new highs after breaching their 52-week highs. I think this will be the same scenario for MWC.
Still undervalued
I firmly believe that MWC cannot continue to trade at these levels. As it is, MWC is only trading at 9.9x PER to 12/06 earnings. This undermines the value of the company. Currently, the market is trading at 15x PER to 12/06 earnings. Fairly valued, MWC should approximate the market PER. This should bring MWC to at least P15.0/share.
I do believe that If investors are paying market PER on companies that are generating less than 10% earnings growth, pretty soon they will realize that MWC is a bargain at single digit PER generating 25% earnings growth. Obviously, there is a valuation disparity that has to be corrected.
Win-win stock
Lastly, there are a lot of uncertainties on the upcoming bid for the West Zone franchise of Maynilad Water. MWC is one of three companies short-listed to bid for the concession. I guess this is partly the reason why its share price has underperformed the market.
However, I see it otherwise. In fact it is a win-win situation for MWC.
Note that MWC is an experienced player in the industry. They will not bid more than the “reasonable” economic return of the concession. So, if they do win, this will be an added bonus for MWC. Perhaps this will finally push the valuation of MWC at par with the market. If they lose, the only reason is that the other bidders overpaid. But this will also increase the implied value of both concessions including the East Zone that MWC currently owns.
So win or lose, MWC wins!
posted by jack galt at
9:31 PM
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