CEB

120 15

HIGH OIL PRICES INDUSTRY

RATIONALIZATION
110
OVERCAPACITY DECLINING OIL PRICES 13

100
PRICE WARS
11
90
Stock Price

80 9

70
7

60

5
50

40 3
2011 2012 2013 2014 2015
Price Earnings
EPS
 DNL
23 0.9
MORE SPECIALIZATION ASSET CONSOLIDATION
SIGNIFICANT MARGIN IMPROVEMENT 0.85

20
0.8

0.75
17
0.7
Stock Price

14 0.65

0.6

11
0.55

0.5
8
0.45

5 0.4
Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15
Price EPS
Earnings
 ALI
45 1.4
STRATEGIC LAND ACQUISITION
AGGRESSIVE LAUNCHES 1.3
40 MARGIN IMPROVEMENT
1.2
BRAND BUILDING
35 1.1

1
Stock Price

30
0.9

25
0.8

0.7
20

0.6

15
0.5

10 0.4
2011 2012 2013 2014 2015
Price Earnings
EPS
 URC 7.4
230
INT’L BUSINESS RTD TEA 6.9
CONSOLIDATION
200
COFFEE MIXES
6.4
LOW COMMODITY PRICES
170
5.9
Stock Price

140
5.4

110
4.9

80
4.4

50 3.9

20 3.4
2011 2012 2013 2014 2015
Price Earnings
EPS
 RWM
0.6

11
SOLAIRE OPENS CITY OF DREAMS OPENS
CHINA CRACKDOWN
10 0.55

9
Stock Price

0.5
8

7
0.45

5 0.4
Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15
Price Earnings
EPS
 PSEi
8500 450
GDP GROWTH
DEMOGRAPHICS
7500
400
OFW REMITTANCES
BPO JOBS AND REVENUES
6500
LOW INTEREST RATES 350

5500
Index

300

4500

250
3500

200
2500

1500 150
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Price Earnings
EPS
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 DISADVANTAGES

• Most commonly used • Time consuming

• Specific assumptions • Information heavy
can be made
 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 1.375% Jan 2016
Php100Mil time deposit rate Php101.375Mil

Jan 2015 1.375% Jan 2016

Php100Mil time deposit rate 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 DISADVANTAGES

• Most commonly used • Time consuming

• Specific assumptions • Information heavy
can be made

When do you BUY?

When do you SELL?
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 DISADVANTAGES

• Easy to apply • Comparables and

multiples can be very
subjective
P/E and EPS growth

STOCK A STOCK B

Current Price: Php10 Current Price: Php100

2015 EPS: Php1 2015 EPS: Php50

10X P/E 2X P/E

Earnings Current price

EPS = P/E =
Number of shares 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
Which stock looks expensive?
A 10% 10.0
Company B looks cheap B 20% 8.0
C 15% 12.0
Company D looks expensive D 8% 15.0
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 24.5 10%
AEV 15.7 9%
AGI 13.6 29%
COSCO 13.2 11%
DMC 12.1 37%
FPH 8.2 1%
GTCAP 18.8 39%
JGS 21.1 30%
LTG 23 47%
MPI 12.5 20%
SM 23 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
Current price
P/BV =
Book value per share

Equity
Book value per share =
Number of shares

Net income
ROE =
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

Which stock looks expensive?

A 15% 0.9
B 12% 1.4
Company A looks cheap
C 8% 1.9
Company C looks expensive D 15% 1.7
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 Company Dividend Yield

MER Manila Electric Company 5.2%
AEV Aboitiz Equity Ventures 2.7%
GLO Globe Telecom, Inc. 2.9%
TEL Philippine Long Distance Company 5.6%

Dividends per share

Dividend Yield =
Current price
Where to get Information?

COL Reports

Investment Guide
COL Reports

- Semi-annual strategy reports

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

- Monthly strategy reports

COLing the Shots - Focused on relevant issues
for the month
COL Reports

- Company specific
Company Report - Earnings reports
- Meetings with management

- Summary of both recent

Daily/Weekly economic and company
specific news
How to find
the reports
 Investment Guide

- Contains most important information on COL’s 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 Company Website Newspaper Reports

Focus on company Learn more about what
disclosure, especially 17A the company does
(annual report) and 17Q
(quarterly report) Sometimes, the company
would have press
releases, presentations
available
“Be fearful when others are greedy and
greedy only when others are fearful”
- Warren Buffet
 80
Stocks

Invest for the Long Term 60

Compound Annual Returns (%).

Maximum and Minimum Real Holding
40 Period Returns,
Bonds 1802-1997
26.7
80 T-Bills
67 Stocks
20
Bonds
Compound Annual Returns (%)

60 T-Bills
0
41
40 35
24 25 22 27 -20
20 18 15 17
12 12 13 11
9 8 7 8
-40
0
1 -3 3 -2 -2
-4 -5
-60 -5 -3
-11 -10 -8 1 2
-20 -16 -16 -15
-22
-32
-40 -39

-60
1 2 5 10 20 30
Years of Holding Period

Stocks outperform all asset classes in the long run