Vista Land (VLL - P6.855) - The good, the bad and the ugly
I replied to a comment by a reader regarding VLL. Please read
The Saga . I guess to be fair to my readers, let me "blog" down my comment.
Let me start with the "ugly". Investors are hesitant to subscribe to the offering because of the poor performance of Aboitiz Power (AP - P5.60)
Lets put the performance of AP in perspective. The offering price of AP was priced at a premium to the utility/power sector average valuation. So this means that investors are better off buying other cheaper utility counters like Meralco (MERB - P100) , Manila Water (MWC - P14.50), First Generation (FGEN - P68.0) which trades at 20% discount to AP's offering price. Obviously, the market has to correct the disparity. Besides, its parent - Aboitiz Equities (AEV) never traded at a premium. So from the start, its a long shot for AP.
What's "bad" about the offering of Vista Land is that investors are still haunted by the the C&P Homes debacle that happened at the height of the financial crisis. In 1999, the company defaulted on US$150m worth of debt leaving investors with worthless papers. I guess the "C&P" stigma is just hard to shake-off. However, taking out "emotions" from our judgment, the situation is not unique to C&P Homes. Most heavily indebted companies went through that phase as well. So it is unfair to single out C&P Homes. What we have to realize is that companies that have undergone successful restructuring are the big winners in this market. Think Bepnres (BPC - P5.30) and Meralco (MERB - P100.0). In fact, the market has voted. Share price of Vista Land/C&P Homes rose by as much as 406% in 2007, making it one of the best performing stock in the market today.
So what's "good" about the offering is that the fundamentals of the company have gotten better. C&P Homes is a totally different animal after the company was acquired by Vista Land. So how do the numbers stack up?
My price target for VLL is between P8.0-P10.00. This has been my target since I recommended C&P Homes last February. Vista Land is expected to make P3.5bn net income this year. This translates to a Price Earnings Ratio (PER) of 18x to 12/07 earnings. Both Megaworld (MEG) and Filinvest Land (FLI) trades at 30x to 12/07 earnings. Assuming VLL trades at 25x PER, this should bring its price to P9.40 per share. I feel that 25x is a fair PER vis-a-vis MEG and FLI. My premise is that we are just at the beginning of the property bullrun where earnings are likely to surprise than disappoint. Thus the higher PER is justified at this point on the back of an anticipated re-rating in the coming months.
Note that after the offering, VLL will have a net cash position of P8.0bn and roughly 1,100 ha. of land bank to develop. This will make VLL one of the better capitalized property company in country. This gives VLL an enviable war chest to parlay in the booming property sector. Simply put, the turnaround chapter is now in play.
The Saga . I guess to be fair to my readers, let me "blog" down my comment.
Let me start with the "ugly". Investors are hesitant to subscribe to the offering because of the poor performance of Aboitiz Power (AP - P5.60)
Lets put the performance of AP in perspective. The offering price of AP was priced at a premium to the utility/power sector average valuation. So this means that investors are better off buying other cheaper utility counters like Meralco (MERB - P100) , Manila Water (MWC - P14.50), First Generation (FGEN - P68.0) which trades at 20% discount to AP's offering price. Obviously, the market has to correct the disparity. Besides, its parent - Aboitiz Equities (AEV) never traded at a premium. So from the start, its a long shot for AP.
What's "bad" about the offering of Vista Land is that investors are still haunted by the the C&P Homes debacle that happened at the height of the financial crisis. In 1999, the company defaulted on US$150m worth of debt leaving investors with worthless papers. I guess the "C&P" stigma is just hard to shake-off. However, taking out "emotions" from our judgment, the situation is not unique to C&P Homes. Most heavily indebted companies went through that phase as well. So it is unfair to single out C&P Homes. What we have to realize is that companies that have undergone successful restructuring are the big winners in this market. Think Bepnres (BPC - P5.30) and Meralco (MERB - P100.0). In fact, the market has voted. Share price of Vista Land/C&P Homes rose by as much as 406% in 2007, making it one of the best performing stock in the market today.
So what's "good" about the offering is that the fundamentals of the company have gotten better. C&P Homes is a totally different animal after the company was acquired by Vista Land. So how do the numbers stack up?
My price target for VLL is between P8.0-P10.00. This has been my target since I recommended C&P Homes last February. Vista Land is expected to make P3.5bn net income this year. This translates to a Price Earnings Ratio (PER) of 18x to 12/07 earnings. Both Megaworld (MEG) and Filinvest Land (FLI) trades at 30x to 12/07 earnings. Assuming VLL trades at 25x PER, this should bring its price to P9.40 per share. I feel that 25x is a fair PER vis-a-vis MEG and FLI. My premise is that we are just at the beginning of the property bullrun where earnings are likely to surprise than disappoint. Thus the higher PER is justified at this point on the back of an anticipated re-rating in the coming months.
Note that after the offering, VLL will have a net cash position of P8.0bn and roughly 1,100 ha. of land bank to develop. This will make VLL one of the better capitalized property company in country. This gives VLL an enviable war chest to parlay in the booming property sector. Simply put, the turnaround chapter is now in play.
posted by jack galt at
3:56 PM
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