San Miguel Food And Beverage Inc. Analysis Of 1H18 Financials And What I Think About It | The Investing Engineer PH

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San Miguel Food And Beverage Inc. Analysis Of 1H18 Financials And What I Think About It

fb stock review

Finally! The 1H18 report is already out and I'm excited to share with you my analysis and opinion of FB now that the report contains the consolidated figures from the merging.

This post will analyze the six-month ended June 30 financial figures so that we can come up with an idea of the growth and margins the consolidated company has and what we can expect from it.

I'll also show you the intrinsic value calculations and what I think about the company as a whole.

Let's begin!

Growth Figures For The Six-Month Ended June 30

Income Statement

(in Mil)

1H17

1H18

Growth (%)

Revenues

119,130

137,441

15.37%

Gross Profit

38,978

44,833

15.02%

Earnings Before Taxes

18,013

21,864

21.38%

Net Income

12,805

15,370

20.03%

Net Income - Parent

7,929

9,260

16.79%

Earnings Per Share

1H17

1H18

Growth (%)

Earnings Per Share - 1H18

1.27

1.50

18.11%

Earnings Per Share

FY17 TTM

FY18 TTM

Growth (%)

Earnings Per Share - TTM

2.57

3.01

17.12%

  • The increase of revenues by 15.37% is due to the increase in sales in the Beer and NAB, Spirits, and Food segments.
  • The increase of gross profit by 15.02% is also due to the increase in sales of the above mentioned segments.
  • As a result of the good performance, earnings before taxes and net income increased by 21.38% and 20.03% respectively. The net income attributable to the parent increased by 16.79% and the earnings per share increased by 18.11%.
  • check
    The trailing twelve month earnings per share increased by 17.12%, from 2.57 to 3.01.

Profit Margins For The Six-Month Ended June 30

Margins

1H17

1H18

Average

Gross Profit Margin

32.72%

32.62%

32.67%

EBT Margin

15.12%

15.91%

15.51%

Net Margin

10.75%

11.18%

10.97%

  • check
    Gross profit margin averaged at 32.67%, EBT margin at 15.51% and net margin at 10.97%.

Key Performance Indicators

Key Ratios

December 2017 (Unaudited)

June 2018 (Unaudited)

Current Ratio

1.69

1.40

Debt To Equity Ratio

0.79

0.72

Asset To Equity Ratio

1.79

1.72

Return On Average Equity - Parent

28.04%

26.90%

Interest Coverage Ratio

16.00

17.64

Intrinsic Value Calculation

1) Equity-Bond Valuation

Stock Data

Values

Price (as of Aug. 24, 2018 closing)

₱96.00

Earnings Per Share TTM

3.01

Dividend Per Share TTM

0.95

Book Value Per Share MRQ

14.14

P/E

31.9

P/B

6.8

Earnings Yield

3.1%

Dividend Yield

1.0%

7-Year Averages

Values

Return On Equity

9.3%

Dividend Payout Ratio

20.8%

P/E Ratio High

45.3

P/E Ratio Low

13.9

Average P/E Ratio

29.6

Sustainable Growth

7.4%

The calculated P/E based on the trailing twelve month EPS is 31.9 which is higher than the 7-year average of 29.6. Earnings yield calculated equates to 3.1% which is lower than the 10-year gov't bond rate of 6.725%.

This suggests that at ₱96.00/share, the stock is already overvalued. FB should trade at ₱44.20/share to match the bond returns. But this doesn't make sense anymore because investors are now willing to pay a high premium on their earnings because of the synergies it created after the merging.

If you're willing to buy it at a premium, the 7-year average P/E is a good yardstick. Based on the average P/E of 29.6, the stock should be priced at ₱89.10. That equates to an earnings yield of 3.4%, a dividend yield of 1.1%, and a P/B ratio of 6.3.

2) Historical Earnings Growth Rate Model

FB's earnings per share have increased at a compounded annual growth rate of 5.8% over the last seven years.

If the earnings per share for the next 10 years increase at this same growth rate, earnings per share in the 10th year will be ₱5.29.

Multiplying this estimated earnings per share by the average P/E ratio of 29.6 gives an estimated price of ₱156.77.

FB is paying dividends regularly so let's add the estimated amount of dividends paid over the 10-year period. Assuming the dividend payout ratio of 20.8% remains constant throughout the period, the sum of the dividends paid over 10 years equates to ₱9.26.

Add that up and you get the total projected gain of ₱166.03. If we compare that to the closing price of ₱96.00, the projected rate of return equates to 5.6% which is low.

If you want to get a return rate of at least 12%, you should buy the stock at ₱53.48.

3) Sustainable Earnings Growth Model

FB's sustainable growth rate is 7.4%. This is calculated by getting the product of ROE and the difference of 1 and the payout ratio.

At this rate, book value per share should grow at to roughly ₱28.89 in 10 years.

If return on equity remains at 9.3% in the 10th year, earnings per share that year would be ₱2.70.

Multiply the estimated earnings per share to the average price-earnings ratio, we get the projected price of ₱79.99. 

The sum of dividends paid over 10 years calculated using the payout ratio is ₱4.43. Add them to the projected price and you get a total gain of ₱84.42. Compare this to the closing price and you get a projected return rate of -1.3% which is bad.

If you want to get a return rate of at least 12%, you should buy the stock at ₱27.17.

Final Thoughts

At ₱96/share, it seems that FB is overvalued and doesn't give an attractive return. However, the management thinks otherwise.

A disclosure was released on August 23. In the disclosure, it stated an indicative follow-on offering of ₱140/share. This meant two things; 1) the management thinks that FB's value is ₱140/share, or 2) the management wants to sell at that premium price.

I believe that SMC is selling the shares at a premium so that they can raise as much as USD$3 billion to fund FB's expansion. If that's true, then they should sell at ₱155/share. Otherwise, I think that ₱140/share already makes sense.

Assuming that ₱140/share is the final price, buying at ₱96 offers a 45.8% upside. However, ₱140 is still indicative. It's not yet final so it still goes to the realm of speculation. If you want a 33% margin of safety, price should trade at ₱93.80. 

Those who already bought and have a low average might want to know if it's still a good buy. My answer is it depends. If you can maintain your average price equal to the share swap value of ₱79, then I think it's worth it.

I really like this company because of the synergies the consolidation created. It enhanced shareholder value that's why I love to buy more of it.

That's it for FB. If you have any thoughts and reactions in this post, you may leave them in the comments section below.

Happy investing!

Disclosure: I own shares of FB and will continue to buy if an offer that I think makes business sense is presented.


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  • Vinny Bautista Balatbat says:

    Great article! Thanks IE

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