I have done this analysis every year for 12 years now with the comparative period interval of 5-year. The last column with heading 2018, should be for 2019 but audited financial can be released only as early as 15-Apr-2020 with a maximum extension of 1 month if any. So, I will update this data by then and for the time being, 2018 audited financial data is in place. Please note as well that instead of using 2009 audited financial data, I used 2007 as it’s relevant to the year they conducted their IPO.
The Quantitative Financial Analysis Considerations.
In items i.2, i.3 & i.4, the minimum benchmark for these ratios should be greater than 1x. But companies in different industries have different needs, so acceptable ratios differ from one industry to another. For the services sector, the ratio that falls below 1:1 or 1x is below the standards. Mark: Failed.
Current Ratio: 1:2.72 or 2.72x is above normal. A minimum benchmark for the current ratio is 1:2 or 200%. This means that a firm has the ability to cover its current liabilities in the short term. But then again, companies in different industries have different needs for liquidity. So acceptable ratios differ from one industry to another. Any current ratios of less than 1:1.75 or 1.75x for any industry are below standard as well. Mark: Passed.
P/E Ratio: 1:11.48 or 12x is within the standard level. The most common P/E for any industry are as follows: Below 12x is above standard (cheap), 12x-25x is median standard and more than 25x is below standard (expensive). Mark: Passed.
EPS Growth Rate: -9.37% is bad. A normal EPS growth rate for any industry is above 18%. If this rate is in negative territory, it should be excluded from the PEG ratio calculation and does make it null. Mark: Failed.
PEG Ratio: -null-. The PEG ratio is considered to be an indicator of a stock's true value, and similar to the P/E ratio, a lower PEG may indicate that a stock is undervalued. Mark: Failed.
P/S Ratio: 1:0.22 or 0.22x at this level is exceptional. The lower the P/S ratio, the more attractive the investment. Price-to-Sales provides a useful measure for sizing up stocks. For this industry sector, the standard P/S ratio is less than 1x. Mark: Passed.
Book Value Per Share (BVPS): PH 2.57. When a stock is undervalued, it will have a higher book value per share in relation to its current stock price in the market. The measure is used mainly by stock investors to evaluate a company's stock price. Mark: Failed.
P/B Ratio: 1:2.12 or 2x. A lower price-to-book ratio could indicate that a stock is undervalued. Again, these vary from industry to industry. However, most value investors may often consider stocks with a P/B value under 3x as their benchmark. Mark: Passed.
D/E Ratio: 1:0.59 or 0.59x is exceptional. The acid test ratio measures the ability to pay short-term liabilities while the D/E ratio measures the long-term leverage. Higher leverage ratios tend to indicate a company or stock with higher risk to shareholders. Investors will often modify the D/E ratio to focus on long-term debt only because the risk of long-term liabilities are different than for short-term debt and payables. Capital-intensive industries such as manufacturing, and telecom tend to have a debt/equity ratio above 2, while tech or services firms could have a typical debt/equity ratio under 0.5. Mark: Passed.
2007 DCF Value:
2014 DCF Value:
2018 DCF Value:
Based on the DCF calculation, the 2018 DCF value is 3.43 which is extremely lower than the market closed price of today at PHP 5.15 (the DCF value should be higher than the market price to indicate that the stock is undervalued). My assumption here is within the industry standard. The services sector is not a risky investment after all compared to consumer products. Why a discounted rate at 14%? The Philippine interest rate usually stands at 6-7% and diverges from one financial institution to another then adds another 7% for a market risk premium (this is constant in DCF calculation). In a high-risk investment, another 7% needed to be considered as acceptable standards, like property and financial sector, etc..
My Qualitative Financial Analysis Considerations.
The business model:
Ang punto ng business model ay tinitingnan ng isang mamumuhunan kung gaano ba ka di pangkaraniwan ang negosyo ng isang kompanya at di ka ba mabubuhay kung wala ito o gaano ba kadali ang buhay kung mayroon nito. Sa larangan ng pamamahayag konbenyente ka ba kung wala ito? Sa panahon ngayon at sa pagsulputan ng tinatawag nating “social media” hindi na talaga ganun ito kahalaga. Subalit naisip mo ba kung gaano kahirap ang buhay kung walang radio at telebesyon noong circa 1946? Sa mga panahong iyon ang pangangailangan at malaking papel na ginagampanan nito sa lipunan na ginagalawan ng ating mga ninuno ay hindi maipagkaila na ito ay isang pangangailangan.
GMA7 and ABS have an undisputable history in the broadcasting industry. These entities have been around since March 1, 1950, and June 13, 1946, respectively. Ang marka ko: Pasado
Competitive advantage:
Ang konsepto ng competitive advantage ay halaw sa kung gaano ka ba kagaling sa iyong mga kalaban? Gaano kahusay at kagaling ang iyong serbisyo o produkto at kung gaano ito angkop sa pamayanan.
GMA7 (Kapuso), main competitors are ABS (Kapamilya), TV5 (Kapatid) and CNN Philippines and among others. GMA7 head-to-head with ABS in all aspects of multi-media broadcasting. They both claimed on the top spot, depending on which media audience measurement agency squad you are in. For the financial side, ABS is quite impressive over GMA7 in my valuation test. It is no denial that ABS edged up GMA7 in terms of its existence as GMA7 has been around a little later as mentioned above. Ang marka ko: Pasado
Management:
Karamihan sa mga mamumuhunan (capitalist), ang pamamahala sa isang kompanya ay isang napakahalang aspeto para ang isang negosyo para maglagak ng puhunan. Dito nakasalalay ang isang matagumpay at maayos na pagpatakbo ng isang kompanya para ang iyong pera ay lumago. Ito ang aspeto ng isang negosyate kung saan kailangan nyang pag-aralang mabuti ang kakayahan at kridibilidad ng mga namamahala (management) ng kompanya na pinaglagakan ng iyong puhunan. Dahil sa isang pagkakamali lamang ay maaring ang iyong puhunan may mawalang parang bula.
Even the best business model is doomed if the leaders of the company fail to properly execute the plan. While it's hard for retail investors to meet and truly evaluate managers, you can look at the corporate community and check the resumes of the top brass and the board members. How well did they perform in prior jobs? Have they been unloading a lot of their stock shares lately?
Corporate Governance:
Bilang isang negosyante, kailangan mong alamin ang lahat ng aspeto sa kompanyang iyong paglagakan ng puhunan. Bawat kompanya ay may kanya-kanyang polisiya na kadalasan ay itinago ng mga tagapamahala sa kanilang mga mamumuhunan (stakeholders).
Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors, and stakeholders. These policies are defined and determined in the company charter and its by-laws, along with corporate laws and regulations. You want to do business with a company that is run ethically, fairly, transparently, and efficiently. Particularly note whether management respects shareholder rights and shareholder interests. Make sure their communications to shareholders are transparent, clear and understandable. If you don't get it, it's probably because they don't want you to.
The Political Events:
Ito ang isang aspeto ng kinatatakutan ng isang negosyante. Oras na kinalaban mo ang isang namamahala ng estadong pamahalaan, magbalot-balot ka na at katapusan na ng iyong negosyo, mahihirapan kang magtagumpay sa mga adhikain mo para sa isang matagumpay na kompanya.
The good thing for GMA7 they’re known median to Duterte Administration even to any Administrations in the past.
The Geo-Political Affair:
Ito ay ang mga pangyayaring pampolitika ng mga banyagang bansa. Halimbawa may geyera sa isang bansa, ang kompanya ba na pinaglakan mo ng puhunan ay maapektuhan sa nasabing geyera? Kadalasan ang isang kompanya ay nangungutang sa banyagang bansa para pantustos sa pagpapalago ng kompanya. Ito ba ay maapektuhan sa matas na interest oras gumalaw ng husto ang interest rate? Iilan lang yan dapat na isaalang-alang bago mag lagak ng puhunan sa isang kompanya.
The impact of tumultuous geopolitical affairs on the company’s growth is one of the biggest concerns for every investor. The said geopolitical conflicts could damage a company’s growth. On the economic front, the global growth outlook is murky too. Financial Analyst cited that conflict of this nature could downgrade not only its domestic economic growth but global growth as well and that economic growth is crucial to every company’s financial stability.
My conclusion:
Firstly, to be honest, GMA7 is never on my radar even during its IPO days. In today’s market closed price at 5.15 is 50.15% overpriced based on my DCF value as shown in my DCF calculation. It is also slightly behind ABS in my quantitative fundamental analysis as shown in the table. On the other hand, GMA7 has minimal D/E Ratio and reliable P/E Ratio which indicates that it has a solid intrinsic value for every stakeholder’s investment.
Secondly, I’m the type of person not to be entertained but to be well-informed. For that being said, and since they’re known median to Duterte Administration even to the past Administrations, I prefer to watch the GMA7 public affairs program over ABS to the fact that I don’t have investment for this entity.
Finally, the complete details of their business model, competitors, management, and corporate governance can be found at its annual reports, that can be downloaded at the Philippine Stocks Exchange's (PSE) website.
As I always said, there are no right or wrong valuations. It all depends on your risk tolerance and your due diligence. In short… it’s you and you alone can decide!
DISCLAIMER: I'm not a Certified Financial Planner. Published herein is my personal opinion and should not be construed as a recommendation, an offer, or solicitation for the subscription, purchase or sale of this security.
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