Thursday, December 07, 2006

Mabuhay Value!

With the Singapore market index, STI, scaling fresh heights each day, counters which offer sufficient discount to their intrinsic values are far and few between. Hence, Margin of Safety features a company from slightly afar - headquartered across the South China Sea. Ayala Corporation (PSE:AC) is Philippines' largest investment holding company. As at Dec 05, it has total assets of over P$173 billion with stakes in real estate, banking and insurance, telecommunications, electronics, IT and infrastructure development businesses.

Ayala's main subsidiaries are dominant firms in their respectively fields. For example, Ayala Land, Inc (PSE: ALI) (AL) is the number one property developer in the Philippines. Bank of the Philippine Islands (PSE:BPI) (BOP) is the number two bank while Globe Telecom, Inc. (PSE:GLO) (GT) ranks second largest in terms of subscriber base in mobile telephony. Another listed company which Ayala has a stake in is Manila Water Company Inc (PSE:MWC) (MW). MW can be considered to have a moat in the form of a 25 year concession to provide water, sewerage and sanitation services to about five million people in the East Zone of the Philippines.

At Ayala's current trading price of P510, it offers an opportunity to partake in this diverse congloromate at about 10% discount to its underlying subsidaries businesses. This discount was arrived at without even attributing a single cent to its unlisted investments.

Listed --- Market Price --- Ayala's stake

AL --- P15 --- 59%

BOP --- P64 --- 34%

GT --- P1270 --- 35%

MW--- P9.40 --- 33%

less debt of P27 bil

Market NAV per share = P558



Anonymous Anonymous said...

hi Mr Market,

it's me again! The guy in the BIL thread.

nice calls..

as for a listed conglomerates, they usually trade at a discount. has ayala been trading at a discount traditionally? if so, would the discount persist?

11:27 PM  
Blogger Sarah said...

This comment has been removed by a blog administrator.

12:09 AM  
Blogger Sarah said...

Hi, i accidentally found ur blog. just wanna ask u about ur previous regarding the do you get the market price of metacorp??

12:12 AM  
Blogger Mr Market said...

Hi "the guy in the BIL thread",

There seems to be a prevailing understanding in the market that conglomerates should trade at a discount to its parts. Yes, this may appear true when one examines historical data. As a result, a lot of analysts tend to lop off 20 - 30% off the sum of parts number to arrive at the fair value of the parent. Frankly, I beg to differ on this approach. What the data should also show is the "discount" can close up and there are instances when it becomes a premium! So, looking for an ADEQUATE margin of safety before entry is what is essentially being sought. The real Mr Market is irrational when his mood swings, yeah?

Turning back to the case at hand, Ayala has certainly traded at a discount to its sum of parts. The exact historical discounts are not available off hand but it can easily be worked out in Bloomberg. As to whether the discount would persist, your guess is as good as mine. :)

Parting shot: Caveat Emptor.

10:14 AM  
Blogger Mr Market said...

Hi Sarah,

I hope finding this blog is a pleasant "accident". :)

The market price of Malaysian listed securities may be found on the website of Bursa Malaysia. But if you need real time feeds, a brokerage account or an information and trading system like Bloomberg or Reuters would then be required.


10:17 AM  

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