Financial IQ: High infrastructure cost of Globe

The old Globe corporate logo. (Photo credit: Wikipedia)

Financial IQ Philippines Quick Hit(s):

This is one reason why investing in telecommunication company for long-term is difficult because infrastructure expenses is quite high, which are needed regularly to keep up as the market leader.


One step back, two steps forward. This was how Globe Telecom Inc. characterized its latest financial performance after it reported a 30-percent decline in its net earnings last year—despite having booked higher sales—as it accelerated spending for its ongoing network modernization program.

In a press briefing, officials of the Ayala-controlled telecommunications firm said that its net income for 2012 declined to P6.85 billion from the previous year’s P9.83 billion. The drop came despite a 6-percent increase in Globe’s revenues to P82.7 billion at the end of 2012 from P77.7 billion in the previous year.

Amid complaints being received by the firm from subscribers as it upgrades its long-neglected network, Globe president and CEO Ernest Cu said the company was “encouraged by the continued growth and resilience” of its mobile and broadband businesses “that allowed us to reach record peaks in revenues quarter after quarter despite intense competition” and the ongoing network and IT modernization.

“As we anticipate a more challenging year ahead, given the increasingly competitive environment, we are hopeful that the gains we have made in terms of brand building and differentiation through customer experience will tide us through this most critical period as we complete our network and IT modernization program and undertake the related transition efforts,” he said.

The impact of the modernization-related spending was felt most acutely in the final quarter of the year when its quarterly net income dropped to only P49 million from P1.84 billion in the same quarter of 2011.

The sharp decline was due to the accelerated depreciation costs associated with retiring old network equipment as well as to higher subsidies the company had to pay for the large demand for new iPhone 5 units acquired by subscribers.

On Wednesday, Globe officials also said that the company would soon begin talks with stakeholders of Lopez-owned Bayan Telecommunications Inc. to discuss the firm’s eventual exit from its ongoing rehabilitation program.

Globe recently acquired close to 100 percent of the liabilities of the debt-saddled company in a deal that also allowed the Ayala-led firm to make use of Bayan’s valuable 3G frequency.

Cu said that a future merger with Bayan was possible if such a plan would be accepted by all stakeholders involved. He stressed, however, that any prospective union between Globe and Bayan would not face the same regulatory roadblock experienced by rival PLDT and Digital Telecommunications Inc. two years ago since a merged Globe-Bayan entity would be far from the size that a PLDT-Digitel union would have created in terms of cellular frequencies controlled by a single entity.

During Wednesday’s briefing, Globe officials noted that the company’s broadband and fixed line data segments also posted significant gains on account of the rising demand for data and Internet connectivity.

“Full year broadband revenues were up 16 percent to P8.7 billion as the year marked another milestone for the business with the commercial launch of its broadband LTE service that provided subscribers with alternative tools to improve their overall Internet experience,” Globe said.

http://business.inquirer.net/106337/high-cost-of-modernization-takes-toll-on-globe-income

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Financial IQ: How to make money in a sideways market

Plot of S&P Composite Real Price-Earnings Ratio and Interest Rates using data from irrationalexuberance.com/shiller_downloads/ie_data.xls (Photo credit: Wikipedia)
Financial IQ Philippines Quick Hit(s):

Here is an insight from one of the industry leaders on the financial market.  As long-term investor, it is always a good opportunity to buy good stocks at discounted prices.


Question: The market seems to be trending nowhere these days. There are days when the market is up but the trend never seems to last. Once it goes down, it stops at its previous low and it goes up again. It has been like this for weeks. I am confused and I don’t know if this is the best time to sell or buy. Can you advise me?–KC Almajose by e-mail

Answer: Yes, it is not easy to trade when the market is nontrending because the uncertainties will simply limit your opportunities to profit. Sideways market occurs when the market trades within a narrow range without any clear direction. This is a natural market behavior when traders and investors prefer to wait and see after a significant sell-off. The PSE index has fallen by as much as 9 percent from an all-time high of 5,329 to a low of 4,864 recently. It has since then slowly recovered and drifted sideways to date. You will notice that the average volume traded has also decreased indicating lack of market interest.

But this is temporary. Normally, when sideways market occurs, players are anticipating a breakout of the trading range either upward or downward. If the market is expected to prolong its sideways movement, it is very likely it will eventually break down because investors will get impatient and sell their stocks to raise money for investment somewhere else. This only happens when the opportunity cost of investing outside the stock market is higher.

Our current economic backdrop tells otherwise. Interest rates are falling. Inflation rate is declining to historical lows. Our credit rating is expected to get an upgrade soon. There is every reason to expect that the market will soon end its consolidation phase and resume its uptrend. Although the market is moving sideways, the PSE index over the past few weeks has been trending slowly on higher lows, which means there is a significant bargain hunting activity taking place whenever the stock prices fall at attractive levels.

This is a good opportunity for you to come in and accumulate stocks that you expect to perform well when the market returns to bullish mode. The first stocks that you should look for are those that compose the PSE index because they are the first ones that will move strongly. These are the so-called blue chips because of the size of their market capitalization and industry representation. However, not all are profitable and, therefore, not all have reliable valuations.

Start by reviewing the line-up and select the stocks that will be part of your portfolio. You can choose PLDT and Meralco as your core holdings. PLDT is a good buy because it is trading at prospective P/E ratio of only 14x earnings, cheaper than market average P/E of 17x. Immediate target should be somewhere between P2,600 and P2,700 from the current level. Meralco may be at par with market P/E but, historically, it is a favorite of foreign fund managers. Its current price offers good entry level as it is 18 percent off its 52-week high.

Another stock that you can consider is Megaworld. It is relatively cheaper compared to the other stocks in the PSE index, which are trading way above average. Megaworld’s P/E ratio is only 8x, which is about half the market average P/E ratio. Historically, this stock is highly volatile so there is no hurry to buy it at current prices. You can accumulate it when it trades at lower range. This is one stock that will outperform strongly when the market returns to bullish mode.

The other stocks in the PSE index are relatively expensive because they are either at par or higher than market average. Of course, it doesn’t mean that their stock prices will fall or that they are not good. It simply means they are relatively expensive and further upside may be limited as compared to stocks with lower valuations.

There are equally good stocks with promising fundamentals and which offer attractive P/E valuations that are not part of the PSE index. You can research on them for inclusion in your portfolio.

Once you have selected your stocks, you can accumulate slowly. One way to accumulate is to buy stocks regularly for a fixed specified amount regardless of number of shares bought. It can be weekly or monthly. For example, you commit to invest P25,000 monthly and you selected Meralco. If Meralco is trading at 241 today, you can buy 103 shares for a start. If in the following month, Meralco’s stock price falls to 235, using the same fixed investment of P25,000, you can buy more with 106 shares. You buy more shares when the stock price goes down and buy fewer shares when the price goes up. You will be able to lower your average buying price that can beat the market in due time.

The current sideways market is a good opportunity to position for the next market run-up. The positive economic forecast for the year should be validated by the results of second-quarter earnings next month. Watch out for revaluation as some companies may release above expected earnings results. Monitor their corporate disclosures about new projects and expansion, and analyze how these will impact their earnings. The higher the expected earnings, the cheaper the valuation and therefore more upside potential in the stock price.

After the second-quarter earnings results in the next two months, some stocks will be revalued and it is possible many stocks that were previously expensive may become cheaper.

http://business.inquirer.net/67555/how-to-make-money-in-a-sideways-market

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Financial IQ: Do you know Manny "MVP" Pangilinan?

Image via Wikipedia
Financial IQ Philippines Quick Hit(s):

Superbly written success stories of MVP!


The only thing most people can’t imagine Manuel V. Pangilinan doing is sitting at home, enjoying the pleasures of retirement.


But preparing for retirement is exactly what the businessman, philanthropist and avid sports patron Pangilinan is doing.


First Pacific Co. Ltd., the Hong Kong-based holding company that Pangilinan founded in 1981, celebrates its 30th anniversary this month.


“I hate anniversaries. I always have to give speeches and I’m not good at that. I’ve actually been accused of plagiarism,” Pangilinan says in a recent interview, adding that he usually felt “old” in times like these.


He won’t be retiring just yet as the self-confessed workaholic says there are still three items left on his to-do list that he wants to check off before he cleans out his desk.


The first is to find a young successor that will ensure the group’s continued growth over the next 30 years.


The MVP group is unlike other local conglomerates, which are usually family run. Pangilinan is a bachelor and has no offspring to anoint as heir.


“So I want to look for the talent within the company and develop them to be the next leaders of the company,” Pangilinan says. “Pilipino sana (preferably Filipino),” he adds.


On top of the list of companies Pangilinan chairs is Philippine Long Distance Telephone Co. (PLDT), the leading telecom firm and the country’s largest company with nearly $1 billion in annual profits.


Next is Manila Electric Co. (Meralco), the biggest power distributor and the Philippines’ top company in terms of revenues.


Another is Metro Pacific Investments Corp., the company that runs North Luzon Expressway, as well as interests in water distribution and healthcare.


Outside the Philippines, the First Pacific unit Indofood Sukses Makmur Tbk is now Indonesia’s largest food company.


And Paniglinan has done all this virtually on his own.  Indonesia’s Salim family financially backs First Pacific, but Pangilinan says their influence in decision-making is “virtually none.”


Apart from his success in business, Pangilinan has also been recognized as a philanthropist. The several foundations he chairs have steered billions of pesos to benefit various causes-from disaster recovery and the government’s underfunded sports programs.


“It’s nothing against the Philippines,” he says. “But the goal is to be a giant at least in the region,” he adds.


Last on his list is, well, to make a “bucket list” of what he plans to reach before he “kicks the bucket.”


In business, the Pangilinan group has used its financial strength and influence to do pretty much whatever it wants. In real life, the man admits that he is in touch with his own mortality.

http://business.inquirer.net/3285/softer-side-of-mvp-ph%E2%80%99s-richest-eligible-bachelor