Stocks to watch

Outside the Box
John Mangun

Discussing individual companies on the Philippine Stock Exchange (PSE) is sometimes like walking into a field full of land mines. It hardly matters how well a particular company might be doing in operating its business because ultimately the stock market in general will determine the share price.

The overall market still looks like it is going to go a bit lower as I think it needs to look at the 2200 level on the PSE before any substantial upward movement can take place. The problems with the PSE are the same that have plagued our local stock market since the 1980s; too little liquidity and too much foreign money. As a result, share prices rarely reflect true corporate value but instead reflect “stock trading,” mainly by the fickle foreign money.

Yet there are some companies on the PSE that warrant your attention for longer-term investing regardless of foreign “intervention,” political fun and games, and other foolishness.

San Miguel is a corporation that, in my opinion, has never had an efficient market for that stock. That is, stock price should effectively reflect corporate value and I believe San Miguel shares are consistently undervalued.

The latest development is the potential that San Miguel will no longer continue its joint venture with Coca-Cola. From marketwatch.com: “A Manila newspaper last week reported that Coca-Cola, which owns 35 percent of CCBPI [Coca-Cola Bottling Philippines Inc.], doesn’t intend to renew the license of CCBPI to bottle the US beverage company’s products when the five-year deal expires this June. Under the licensing deal, San Miguel pays royalties to and buys its soft-drink concentrates from Coca-Cola, while Coca-Cola shoulders advertising and marketing costs.”

Although Coke owns the soft-drink market in the Philippines, “CCBPI last year saw sales volume slide 8 percent on year to 520 million cases, sending revenue down 7 percent on year to P39.8 billion and operating profit down 63 percent to P1.2 billion. San Miguel reportedly blames CCBPI’s problems on a lack of advertising support from Coca-Cola, while the US company attributes the problems to San Miguel’s distribution efforts.” This does not sound like a marriage made in heaven.

After the Cojuangco group took over control of San Miguel some years back, a priority was to regain CCBPI after it was sold to the Australian Coke bottler under the Soriano chairmanship. San Miguel made money on that reacquisition but the soft-drink market has changed dramatically since then. Flavored mineral water, bottled teas and the like are eating into the traditional soft-drink sales. Products like Coca-Cola will always have a place in the market shelf. However, no matter how you dress it up, companies like Coke are a one-product business. And San Miguel does not need Coke.

There is no question now that San Miguel was looking toward this 2006 expiration of its agreement with Coca-Cola when it purchased Cosmos Bottling. The Cosmos division can be equally as profitable with its products as Coke and there are no royalties to pay to a foreign entity. On this one development alone, San Miguel belongs in your equity portfolio.

Robinson’s Land Corp. is another company that I think has been consistently undervalued with regard to its stock price. No doubt, this is in part to the heavy-handed management and public relations style of “Big John” Gokongwei. Now Mr. Gokongwei has relinquished control of the day-to-day operations of his group to much more amenable son Lance. It is simply a fact of stock-market life that people buy shares in companies that they like and trust.

The latest development with Robinsons is its intention to sell some 450 million shares to local and international institutional investors. One purpose of this offering is to boost trading liquidity, which is a very good idea and strategy to raise the price of the stock, as more players will now own shares. The other reason is to raise more than P4 billion from the share offer.

While the Shoemart group continues to build a mall, perhaps eventually in every barangay in the Philippines, Robinson’s is looking at some more interesting residential/mixed-use projects. 

Earlier this year, Robinson’s acquired the old Manila Gas property, four hectares in Paco for some P573 million. It will probably cost between P500 million to P1 billion or more to develop that property.

Furthermore, Robinsons would like to acquire the old International School location in Makati. Almost five hectares in size, this land is worth over P1 billion and would need another P1.5 to P2 billion for development. I think we just discovered where the P4 billion Robinsons is going to raise from this stock offering is going to be spent.

With San Miguel trading at about P62 and Robinsons near P11, both will challenge their recent highs at the least over the next few months.

E-mail comments to mangun@email.com.