The scorecard on MERALCO (MERB – P50.50)
Last Wednesday, the Supreme Court (SC) reversed the earlier decision of Court of Appeals (CA) preventing MERALCO from implementing the rate “unbundling” scheme that was approved by the Energy Regulatory Commission (ERC) last June 2003. What the decision implies is that MERALCO can now keep the P.0865/kwh distribution charge that it has been charging its customer.
Beyond the ruling, here is the low-down on MERALCO.
1.) One-time gain of P12.82/share. MERALCO has provided around P19.72bn in provisions for probable losses in case the SC ruled against the company. Net of taxes, this should amount to P12.82/share in one-time gain. On the other hand, book value per share will increase significantly to P45.0.
2.) Annual recurring income of P7.0bn. Moving forward, MERALCO is expected to earn P7.0bn per year. On an EPS basis, this translates to P7.0/share. The last time MERALCO generated this much income was in early 2000.
Last Friday, share price of MERALCO rose as much 30% in reaction to this news. The “manna” from SC added close to P14.0bn to its market value. I vividly recall 4 years ago when MERALCO lost close to 80% of its market value when the SC ruled that it has to refund the P0.167/kwh that MERALCO has been charging its customer since February 1994. The ruling cost the company P30.0bn. I guess as the saying goes, what goes around comes around.
So how far, will the share price of MERALCO run? Currently, the utility sector trades at 10.0x PER. Assuming MERALCO approximates these values, MERALCO can potentially trade as high as P70.0/share.
However, there are two other “wildcards” that can potentially add more value to the company.
First, the pronouncement by the Lopez group that they are willing to sell their stake at the right price. So reading between the lines, it seems that a merger and acquisition (M&A) deal is brewing. Assuming, we factor in an acquisition premium, MERALCO can potentially be a P100 stock
Second, I do believe that there will be an overall re-rating of the sector. The decision on MERALCO is a big step in projecting a “pro-utility sector/pro-business” stands of the current administration. Assuming, the sector trades at par with the market; it should be trading at 14x PER and not at 10x PER.
Beyond the ruling, here is the low-down on MERALCO.
1.) One-time gain of P12.82/share. MERALCO has provided around P19.72bn in provisions for probable losses in case the SC ruled against the company. Net of taxes, this should amount to P12.82/share in one-time gain. On the other hand, book value per share will increase significantly to P45.0.
2.) Annual recurring income of P7.0bn. Moving forward, MERALCO is expected to earn P7.0bn per year. On an EPS basis, this translates to P7.0/share. The last time MERALCO generated this much income was in early 2000.
Last Friday, share price of MERALCO rose as much 30% in reaction to this news. The “manna” from SC added close to P14.0bn to its market value. I vividly recall 4 years ago when MERALCO lost close to 80% of its market value when the SC ruled that it has to refund the P0.167/kwh that MERALCO has been charging its customer since February 1994. The ruling cost the company P30.0bn. I guess as the saying goes, what goes around comes around.
So how far, will the share price of MERALCO run? Currently, the utility sector trades at 10.0x PER. Assuming MERALCO approximates these values, MERALCO can potentially trade as high as P70.0/share.
However, there are two other “wildcards” that can potentially add more value to the company.
First, the pronouncement by the Lopez group that they are willing to sell their stake at the right price. So reading between the lines, it seems that a merger and acquisition (M&A) deal is brewing. Assuming, we factor in an acquisition premium, MERALCO can potentially be a P100 stock
Second, I do believe that there will be an overall re-rating of the sector. The decision on MERALCO is a big step in projecting a “pro-utility sector/pro-business” stands of the current administration. Assuming, the sector trades at par with the market; it should be trading at 14x PER and not at 10x PER.
posted by jack galt at
5:34 PM
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