PSEI - Bounce

After closing at a loss for 9 consecutive sessions, PSEI bounced back from its lowest of 7,206.04 yesterday to 7,227.37 today., an increase of 66.46 points or 0.94%. Can the PSEI sustain its rally next week? Here are the things to consider:

1. US Elections

A lot of volatility in the market are caused primarily by the uncertainty of the US elections. As the election draws near, the lead between Trump and Clinton is already narrowing, and the market is still not sure what would happen in a Trump leadership. So the growing uncertainty makes investors nervous about what would happen to US in case Trump wins, especially with his tightened policies: building a wall along US-Mexican Border, and his plan to increase tariffs on imports by the US.

While a Clinton win will provide a safe ending for the market, we still have to wait for the election result to know what is going to happen. But as far as PSEI is concerned we need Clinton to win to continue the rally.

2. Brexit may be postponed

Because of an earlier ruling of the court that the parliament should have the final say with regards to the exit of Britain to the EU, there is uncertainty whether Prime Minister May can activate Article 50 in 2017 and even having the possibility of cancelling the whole brexit, because she has only a small minority in the parliament. Although she is taking up the case to the supreme court to appeal.

3. More Financial Reports

We can expect more company submitting their reports next week especially since the deadline is already near. Although we're still waiting for more Financial reports, especially from the companies under PSEI. As of now the reports of SECB and BDO already saw an increase in their Earnings with the exception of MBT slowing down. We're still waiting for the FS of Ayala group of companies, SM Group and the majority of the Index. Investors are hoping for a good earnings report for the bourse.

4. Oil & US Stocks

Oil is still down for a sixth consecutive days if it stay and close in red today. OPEC is still dealing with oversupply of Oil and Oil Producing company like Riyadh threatened to raise more output, further dragging oil prices down. US stock in the other hand opened flat and may end its losing streak if it closes green today. A bounce in US stocks may drive investors optimism on Monday next week.

5. Manny winning/ Bonus week

Yes! We need Manny to win, this could boost local investors to trade more and buy more especially now that a lot of companies are giving out 13th month bonuses already. More supply = more demand.

Congrats Manny!

There still a lot of factors to consider but these are my top consideration for next week. In summary, we can expect a bounce rally for the PSEI next week and investors can take an advantage for a short up-swing.  

PSEI - Happy Halloween

PSEI slides further down for the fourth consecutive time this week diving to 7,317 and finally closing at 7,404.8 points, traders were on a selling pressure today ahead of the 4-day holiday next week due to celebration of All-saints day.



PSEI may continue its downward momentum this week due to lingering selling pressure but may tread sideways into 7500-7400 range, opening in Wednesday should not go below 7,400 to hold initial support.

In addition, here are the top things to consider next week:

• US 3Q GDP of 2.9%

This was the biggest GDP gain in two years since 2014 and may prompt the FED to strengthen its stance in raising the rate the 2nd time. FED is unlikely to raise rates this November because of the upcoming US presidential election. We're still waiting for the core inflation and FED's announcement in Thursday.

• GLOBAL Stocks down, rise in GLOBAL Bonds

As the certainty of a FED hike this December is looming, Treasury yield bonds rose to their highest level which in turn boosted USD.

• Oil prices edged lower

Oil prices edged lower on Friday and were set for the biggest weekly losses in six weeks over doubts about whether oil producers will be able to agree on an output cut big enough to curb a global glut that has weighed on markets for two years. ©reuters

• PH Companies 3Q Earnings report

A lot of companies are already submitting their 3Q FS and we may expect more this week.

• Result of Duterte's trip to Japan

The trip yielded a $1.8 Billion deal which can gain a positive feedback on investors sentiment. This can ease the worry on most investors about the Philippines cutting ties on US and losing a lot of trade deals. Moreover, Japanese integrated trading and investment business conglomerate Marubeni Corporation also intends to provide US $17.2 billion dollars for several projects. ©gma

Happy Halloween, and stay safe this Holiday. GLHF.

MPI - Operating Cash Flow

After analyzing MPI's balance sheet and income statement, we now go to its cash flow statement.
Cash flow statement has three parts: Operating, Investing and Financing, but I will focus only in the Operating cash flow.

Cash Flow from Operations
This is the key source of a company's cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. In this section of the cash flow statement, net income (income statement) is adjusted for non-cash charges and the increases and decreases to working capital items - operating assets and liabilities in the balance sheet's current position.

Read more: Analyze Cash Flow The Easy Way | Investopedia http://www.investopedia.com/articles/stocks/07/easycashflow.asp#ixzz4OMrfCCfZ
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Based on the operating cash flow of MPI we can see that it finally bounced back from the negative territory last 2014. The increase was mostly attributed from the increase in its Income before tax which grew 20% from 2014-2015. Its cash flow per share which measures firm's financial strength also increase in 2015.




Basically Cash flow per share tells us how much cash each share generates. Same as Earning per share although EPS might be inflated since Net Income includes sources other than cash.

MPI never miss in declaring dividends and it increased in volume recently especially last 2014. Earning per share is still increasing at a double digit growth and as a side note BSP released its projected inflation at 2.9% and our projected GDP at 7% so we can expect a 10% growth in dividends next year.

I would like to add the above ratio in the analysis especially with #1 and #2. MPI is expanding aggressively for the past 3 years which is evidenced by declining rates of the said ratios. We don't want to invest in a company that has too much debt because its more risky. But as I discussed in my previous posts, MPI's expansion is aligned with the demand in the industry because of the significant focus of the government to public spending and the revamping of Philippine's infrastructure. More demand just means more growth for MPI. Also as an additional note, the focus of the current administration to improve our provinces could mean an additional revenue on MPI's toll roads and expressway. 

Parting notes

This is the last part of my MPI analysis and I hope you guys understood the whole thing. This is my first time posting an analysis and I do hope it wasn't confusing or complicated. Next month would be another company and I'm thinking of doing BDO since it's the 2nd in my top 5 company to invest. So see you again guys next week for another analysis hope my analysis helped you in deciding whether MPI is a good investment. GLHF.

MPI – Profitability

I previously discussed MPI’s basic fundamentals which consists of  it’s Asset, Liability and Equity analysis, paired with “Key Financial Ratios” that provides us insights of the company’s stability and earning power. Today I will focus on the “Income Statement” side of the company that will tackle its profitability and use of financial leverage.

Let’s start with its Net Income:

Over the years MPI's Net income is growing at a faster pace as the company expands its operation, I also want to emphasize the company's double digit PMRs' (Profit Margin Ratio) growth. The company attributed their better earnings with the strong Toll road revenue due to the significant increase in traffic growth, mainly because of the high vehicle sales in the country.

Water and Hospital revenue made a decent growth mostly because of the El Niño we encountered in the first half of the year. The company said it would have been much stronger if it weren't for the "ongoing delay on tariffs increases*".

Overall operating revenue of MPI was in its highest last year as a result of its major expansion thru major acquisitions (i.e. On April 17, 2015, MPIC acquired additional MERALCO shares from Beacon Electric, bringing effective ownership in MERALCO to 32.48% from 27.48% in 2014).

We also need to take note the increase in the amount of Operating expenses of the company last 2015, although, the growth of OPEX slowed down a little. However, as long as the company maintains its high percentage of Net Income growth, we are still safe to say that MPI would still be profitable.

Summary

MPI expanded its operations last year and may reap what it sow this year. We still need the 3rd quarter report to project if it would exceed its 2015 earnings. But as we can see on it's first half results, MPI is on track on another good year earnings. I still have so much to add and will update as soon as I got the time. Whoever read the whole thing, a big thanks to you. Still new with this, so feel free to comment on what I have to improve/add/remove or any suggestion is gladly accepted. Happy investing, GLHF.

*“Our earnings would be still stronger were it not for the ongoing delay in tariff increases
for our water and tollroads businesses. We are greatly encouraged by initial indications from
the new Administration that we will be able to move to a swift resolution of these key pending
matters.” - MPI 2016 2nd Quarter FS

MPI - Is it a safe stock?

Hi guys, to anyone who read this, this is my first ever stock analysis. Excuse my grammar, and I do hope you understand the whole thing. I will be focusing on 1 stock per month since I have little to no free time. All my opinions are original, but if it is the same to anything you wrote or read, it is purely coincidental and I apologize for that. 

Metro Pacific Investment Corporation (PSE:MPI)

Why MPI? For me MPI is on my Top list of stocks,and I believe that this company can last a lifetime, but I still need to make sure that this is the case. So in order to do that, I need to research about the company and know if MPI is really a safe bet. Because sharing is caring, I will share to you guys what I found out.

Listed only in 2006, MPI has still a lot of space to grow. If you follow the news, we all know that PRRD is focusing on infrastructures right? With his 10 point agenda and all ( 7 Trillion planned spending on Infra). An excerpt on their FS:

          “MPIC is a leading infrastructure holding company in the Philippines. MPIC’s intention is to

maintain and continue to develop a diverse set of infrastructure assets through its investments in

water utilities, toll roads, electricity distribution, healthcare services and light rail. MPIC is

therefore committed to investing through acquisitions and strategic partnerships in prime

infrastructure assets with the potential to provide synergies with its existing operations”.

*More details about the company in their website.

Because of the government initiative in increasing public spending and focusing in infrastructure. The demand for the sector is high, and MPI already had the upper hand, bagging the first PPP of the PRRD administration. But first we need to know more about the company we are investing into.

So how do we know if MPI is a safe stock to invest. First let’s look at MPI’s fundamentals:

MPI’s Total Assets growth is at its fastest pace, with Total Asset in 1H2016 already exceeding that of 2015. We need a company that won't be closing down soon, and a company with a steady growth, a double digit growth at that.

Capital growth slowed down in 2014, rebounded back swiftly the following year. Volume is still at an increasing pace.



Liability significantly jumped last year and this year, at 45% and 52% respectively.


A big portion of increase in liability is due to increase in Long-term Debt, which is quite alarming, an increase of45% or P47 billion Increase in Debt for just over a year is something we need to know more. Reading their 2015 AFS (Note 19) it states:

"On April 14, 2015, MPIC entered into separate agreements to secure loan facilities in the
aggregate amount of P25.0 billion (P25.0 Billion Facility), proceeds of which were used to
partially finance the acquisition of 10% of the total issued and outstanding common shares of
Meralco held by Beacon Electric"

P28.0 billion loan intended to finance investments in wastewater collection and treatment, and septage management in Metro Manila.



Based on the datas gathered, MPI had been expanding its asset and operation thru debt financing. The company is on an aggresive stance, although quite alarming, but not totally bad. Mainly because their expansion is aligned with the demand on Infrastructure industry due to promised growth on public spending by the current admin. But we wouldn't want a company that rely too much on debt, right? We can also see that this year, long-term debt already slowed down to 2% for the first half, which could also mean that MPI is managing it's credit exposure.


That's MPI basic Fundamentals, but it is still not enough to know if the company is a safe investment in the long run. In order to that we need to compute for "Key Financial Ratios":

So what are these "Key Financial Ratios", what do these mean? If you were awake the time your boring math teacher taught the class about ratios, you will probably had the idea at least. But since you didn't believe that math calculation would be useful when you grow up, you hadn't had the slightest urge to know. Anyway, i'm not here to talk about that. Key Financial Ratios in layman terms, are basic computation that helps us in making decisions before investing in a company.

Here I will be using ratios that compute "Earning Power", basically this would tell us if MPI is healthy and would not be shutting down any time soon. This would also tell us how risky it is to invest in the company.




1. Equity Ratio - this ratio simply measures how much of the total assets is financed by stockholders. We can see on the data above that from 2012, equity ratio is starting to decline, meaning the company is relying more in debt financing in expanding its operations. We need to watch out for this ratio because the lesser the percentage of the equity over the asset, the greater the risk in investing in the company.

2. Debt Ratio - is the same as the first ratio as this measures how much of the total asset is financed by Liabilities. Although we will focus more on the next ratio which is the Long-term Debt ratio, whuich measures how much of the total asset is financed by credits from the bank. The data shows us how the debt increased from 2012-2015 but managed to slow down a bit this year. We need this ratio to be manageable in order for the company not to be burden by fixed charges coming from its debt, which in turn affects its Net Income.

3. Debt to Equity Ratio - this last ratio tells us how dependent is the company's operation to external financing. We can see that the Debt-to-Equity Ratio is increasing, meaning MPI is getting a little aggresive in financing its operations.

Summary

MPI is still expanding and growing at fast rate. Although we observed that the company reduced its equity exposure and entered into more debt last year (2015) they still managed the risk and slowed down this year. Long-term debts are still manageable and we can still safely assume that MPI won't be closing anytime soon. MPI's expansion is still in line with the current administration focus in infrastructure growth, and the demand on the industry. A strong demand and a stable company = good investment.

I still have a lot to add on this company, and will talk a lot more. Next would be its profitability. Feel free to comment and suggest.

Sources: 

2012-2015 Published Audited Financial Statements
1H2015 & 1H2016 Quarterly reports
http://edge.pse.com.ph/
https://www.google.com.ph (For ratio definitions)