CEB

120

15

INDUSTRY
RATIONALIZATION

HIGH OIL PRICES

110
OVERCAPACITY

DECLINING OIL PRICES

13

100

Stock Price

PRICE WARS

11

90

80

70
7

60
5

50
40
2011

2012

2013
Price

2014
Earnings
EPS

2015

DNL
23

0.9

MORE SPECIALIZATION

ASSET CONSOLIDATION
0.85

SIGNIFICANT MARGIN IMPROVEMENT

20

0.8

0.75

17
Stock Price

0.7

14

0.65

0.6

11
0.55

0.5

8
0.45

5
Dec-13

0.4

Mar-14

Jun-14

Sep-14
Price

Dec-14
Earnings
EPS

Mar-15

Jun-15

ALI
45

1.4

STRATEGIC LAND ACQUISITION

AGGRESSIVE LAUNCHES
40

1.3

MARGIN IMPROVEMENT
1.2

BRAND BUILDING

Stock Price

35

1.1

30

0.9

25

0.8

0.7

20

0.6

15
0.5

10
2011

0.4

2012

2013
Price

2014
Earnings
EPS

2015

URC
7.4

230

200

INTL BUSINESS
CONSOLIDATION

RTD TEA

6.9

COFFEE MIXES
6.4

LOW COMMODITY PRICES

170
Stock Price

5.9

140
5.4

110
4.9

80

4.4

50

20
2011

3.9

3.4

2012

2013
Price

2014
Earnings
EPS

2015

RWM
0.6

11
SOLAIRE OPENS

CITY OF DREAMS OPENS

CHINA CRACKDOWN

Stock Price

10

0.55

9
0.5

7
0.45

5
Dec-13

0.4

Mar-14

Jun-14

Sep-14
Price

Earnings
EPS

Dec-14

Mar-15

PSEi
8500

450

GDP GROWTH
DEMOGRAPHICS

7500

400

OFW REMITTANCES

BPO JOBS AND REVENUES

Index

6500

LOW INTEREST RATES

350

5500
300

4500
250

3500
200

2500

1500
2006

150

2007

2008

2009

2010
Price

2011
Earnings
EPS

2012

2013

2014

2015

How do we develop expectations?

Top down approach

Macro-Economics Analysis

Industry Analysis

Company
Analysis

How do we develop expectations?

Top down approach

GDP growth, BPO and OFW
remittances, demographics, low
interest rates
Property Sector
Consumer Sector
Banking Sector
ALI, SMPH
JFC, DNL

Valuations
Market price Current price
Fair Value (FV) estimate Target price

Why is FV estimate important?

A benchmark based on earnings and
fundamentals

Absolute Valuation
Discounted Cash Flow Method

ADVANTAGES
Most commonly used
Specific assumptions
can be made

DISADVANTAGES
Time consuming
Information heavy

Year 1 Cash Earnings

Year 2 Cash Earnings

Company

Year 3 Cash Earnings

and so on

Value of a company = How much cash it can make

Jan 2015
Php100Mil

1.375%
time deposit rate

Jan 2016
Php101.375Mil

Jan 2015
Php100Mil

1.375%
time deposit rate

Jan 2016
Php101.375Mil

Php100Mil in 2015

Php100Mil in 2016

Php100Mil in 2015

Php101.375Mil in 2016

The value of money today is not equal to the value

of money in the future

VALUE NOW

Year 1 Cash Earnings

Year 2 Cash Earnings

Company

Year 3 Cash Earnings

and so on

Value of a company = How much cash it can make

VALUE NOW

Year 1 Cash Earnings

Year 2 Cash Earnings

Company

Year 3 Cash Earnings

and so on

FV estimate = Value of company per share

Absolute Valuation
Discounted Cash Flow Method

ADVANTAGES
Most commonly used
Specific assumptions
can be made

When do you BUY?

When do you SELL?

DISADVANTAGES
Time consuming
Information heavy

Relative Valuation
P/E and EPS growth
P/BV and ROE

LOOP Law Of One Price

Identical assets should trade at the same price
ADVANTAGES
Easy to apply

DISADVANTAGES
Comparables and
multiples can be very
subjective

P/E and EPS growth

STOCK B

STOCK A
Current Price: Php10
2015 EPS: Php1

Current Price: Php100

2015 EPS: Php50

10X P/E

EPS =

Earnings
Number of shares

2X P/E

P/E =

Current price
Earnings per share

General Rule: Relatively cheaper if P/E is lower

P/E and EPS growth

STOCK A

STOCK B

10X P/E

2X P/E

2016: 100% growth EPS

2016: 0% growth EPS

Limitation of relative valuation: Looking at a point in time

Higher EPS growth justifies higher P/E

P/E and EPS growth

Which stock looks cheap?

Company

EPS Growth

P/E

A
B
C
D

10%
20%
15%
8%

10.0
8.0
12.0
15.0

Which stock looks expensive?

Company B looks cheap

Company D looks expensive

P/E and EPS growth

2015E P/E

EPS growth

Consumer

28.2

13%

CIC

24.9

24%

CNPF

22.5

8%

DNL

27.9

-11%

EMP

18.3

22%

JFC

34.6

16%

PGOLD

21.5

9%

PIP

19

10%

RFM

15.9

8%

RRHI

24.2

21%

URC

33

13%

P/E and EPS growth

2015E P/E

EPS growth

Conglomerates

18.4

18%

AC
AEV
AGI
COSCO
DMC
FPH
GTCAP
JGS
LTG
MPI
SM

24.5
15.7
13.6
13.2
12.1
8.2
18.8
21.1
23
12.5
23

10%
9%
29%
11%
37%
1%
39%
30%
47%
20%
8%

P/BV and ROE

Used for banks because assets are already at market value
Most companies book value is not equal to market value

Liabilities

Assets
Equity or
Net Assets

P/BV and ROE

P/BV =

Book value per share =

ROE =

Current price
Book value per share
Equity
Number of shares

Net income
Equity

General Rule: Relatively cheaper if P/BV is lower

Higher ROE justifies higher P/BV

P/BV and ROE

Which stock looks cheap?

Company

ROE

P/BV

A
B
C
D

15%
12%
8%
15%

0.9
1.4
1.9
1.7

Which stock looks expensive?

Company A looks cheap
Company C looks expensive

P/BV and ROE

2015E P/BV

ROE

Banks and Financials

1.8

13%

BDO

2.1

14%

BPI

2.6

15%

CHIB

1.3

10%

EW

1.0

11%

MBT

1.5

12%

PNB

1.0

7%

RCB

1.0

10%

SECB

1.8

16%

UBP

1.3

16%

Dividend Yield
Salary as an investor
Suited for more conservative investors
Most high dividend yielding stocks are utility companies with
slower earnings growth
Ticker
MER
AEV
GLO
TEL

Company
Manila Electric Company
Aboitiz Equity Ventures
Globe Telecom, Inc.
Philippine Long Distance Company

Dividend Yield =

Dividends per share

Current price

Dividend Yield
5.2%
2.7%
2.9%
5.6%

Where to get Information?

COL Reports

Investment Guide

COL Reports

Market Strategy

COLing the Shots

- Semi-annual strategy reports

- Focused on longer term
relevant issues (past six
months, next six to twelve
months)

- Monthly strategy reports

- Focused on relevant issues
for the month

COL Reports

Company Report

Daily/Weekly

- Company specific
- Earnings reports
- Meetings with management

- Summary of both recent

economic and company
specific news

How to find
the reports

Investment Guide

- Contains most important information on COLs coverage

list
Most important information
Current price and buy below price
Rating and fair value estimate
P/E and EPS growth
P/BV and ROE
Dividend Yield

How to find Investment Guide

Using the Investment Guide

Step 1: Create a shortlist of stocks to buy
Ex. List down all the stocks that have a BUY rating whose prices are below the
BUY below price

Step 2: Diversify
Choose companies that belong to different sectors
Ex. One property stock, one bank, one power, etc.

Using the Investment Guide

Step 3: Determine your preferences
Growth, value or income
- Growth: high EPS growth
- Value: high capital appreciation potential, low P/E, low P/BV
- Income: high dividend yield
Liquidity
- Active traders with large portfolio: go for larger market cap stocks
- Long term investor: can invest in smaller market cap stocks
Names
- Major shareholders (Ayala, Aboitiz, Sy, Gokongwei, MVP, etc)
- Brands (Jollibee, SM, Meralco, etc.)

COLing the Shots Model Portfolio

Sector

Current Price

Buy Below Price

FV estimate

AC

Conglomerates

791

701.6

877

MBT

Banks

92.4

87.2

109

SMPH

Property

20

18.88

23.6

FGEN

Power

25.55

28.8

36

CEB

Airline

85.55

124.8

156

FLI

Property

1.87

1.94

2.42

Sources of Information

PSE Website

Focus on company
disclosure, especially 17A
(annual report) and 17Q
(quarterly report)

Company Website
Learn more about what
the company does

Sometimes, the company

would have press
releases, presentations
available

Newspaper Reports

Be fearful when others are greedy and

greedy only when others are fearful
- Warren Buffet

80

Compound Annual Returns (%).

Invest for the Long Term

Stocks

60

Bonds
40 Period Returns,
Maximum and Minimum Real Holding
1802-1997

80
Compound Annual Returns (%)

67

60
41

35

40

25 22

24
20

27
18 15

Stocks

20

Bonds
T-Bills

0
-20

17

12 12

13

-40

-40

-16 -15

-16

-20

-22

-11 -10 -8

26.7

T-Bills

-60
-4 -5

-5

1 -3
-3

11

-2 -2

-32
-39

-60
1

5
10
Years of Holding Period

20

Stocks outperform all asset classes in the long run

30