Intrinsic Value Calculation: TEL, URC, JFC for FY2017

Hi Value Investing fans!

This post will discuss about three PSE stocks; TEL, JFC and URC.

For the previous posts, you can find them here;

Let's begin!

TEL's Revenue has remain stagnant for the last 10 years. In 2009, it booked ₱162 billion of Revenue. In 2017, it booked ₱159 billion.

Operating Income shows a steady decline during the same period. From ₱64 billion in 2009, TEL only manage to book ₱17.8 billion in 2017. It has been a steady 14.17% decline since then.

The same is true with Earnings Per Share and Net Income. EPS steadily declined by 11.42% since 2009 and Net income by 10.06%. In 2017, TEL booked an EPS of 61.61 compared to 92.33 of the previous year, a drop of 33.27%.

Dividends are still steady but the Dividend Payout Ratio is high at around 63.20%.

Despite the stagnant Revenue and decline in Net Income, Operating Cash Flow on the other hand increased by 14.57% in 2017 at ₱56.1 billion compared to ₱49 billion of the previous year.

Free Cash Flow grew substantially by 195.23% at ₱19.4 billion in 2017 compared to ₱6.5 billion of the previous year.

Financial ratios are not looking good. D/E and Current Ratio is at 1.48 and 0.53 respectively.

Return On Assets shows that TEL is starting to take on too much leverage. ROA in 2009 is at 14.92% and as the years passed, asset returns declined and is now sitting at 2.85% in 2017.

Return On Equity also shows a steady decline in comparison to the previous years. In 2013, it recorded around 24.80%. After 4 years, it recorded just half the returns at 12.44%.

TEL is trading at ₱1,372.00 per share at 2.79x book value. That's a 56% upside based on my fair value assumption of 4.35x book value.

URC's Revenue has grown from ₱50.5 billion in 2009 to ₱125 billion in 2017; a 10.66% compounded annual growth during the 10-yr. period. Revenue in 2017 grew by 11.98% compared to ₱111.6 billion in the previous year.

Operating Income grew from ₱4.7 billion to ₱15 billion on an annual compounded rate of 13.36% during the same period although it declined by 11.06% in 2017 compared to ₱16.8 billion of the previous year.

Earnings Per Share during the same period grew by 11.32% compounded annually. In 2017 it recorded an EPS of 4.94; a decline by 28.82% compared to 6.94 of the previous year.

Dividends are stable and yielding at 1.54% and has a Dividend Payout Ratio of 23.80%.

Financial health is doing well. In 2017, D/E and Current Ratio is at 1.91 and 0.41.

Return On Assets and Return On Equity both went down in 2017 compared to the previous year. From 12.01% and 21.58% respectively, it went down to 7.37% and 13.38%. 

Operating Cash Flow booked in 2017 is at ₱14.2 billion, a decline of 14.72% compared to ₱16.7 billion of the previous year. Free Cash Flow also declined by a huge amount compared to last year. In 2017, it booked ₱6.1 billion of cash, a decline of 40% compared to ₱10.2 billion of the previous year.

URC is trading at ₱132.50 per share at 3.59x book value. That's a 7.9% upside based on my fair value assumption of 3.87x book value.

JFC's Revenue grew from ₱48 billion in 2009 to ₱131.6 billion in 2017. That's a compounded annual growth rate of 12.38%. In 2017, Revenue grew by 15.61% compared to previous year's ₱113.8 billion.

Operating Income grew from ₱3.3 billion to ₱6.4 billion during the same period. That's a 7.95% compounded annual growth rate. But last year, it declined by 6.43% at ₱6.4 billion compared to the previous year's ₱6.9 billion.

Earnings per share grew by 15.07% at 6.49 in 2017 compared to 5.64 of the previous year. During the 10-yr. period, we saw it grew at an annual compounded rate of 11.22%.

JFC has very stable and increasing dividends. It's yielding at 0.84% and has a Dividend Payout Ratio of 31.70%.

Operating Cash Flow and Free Cash Flow has healthy figures with ₱12.8 billion and ₱3.9 billion booked in 2017 respectively.

Financial ratios are good. D/E and Current Ratio for 2017 is at 0.37 and 1.39 respectively.

Return ratios are also attractive. ROA and ROE in 2017 is at 8.75% and 19.11%.

JFC is trading at ₱250 per share at 6.37x book value. It looks expensive based on my fair value assumption of 5.98x book value. At fair value, price should be ₱234.66.

So here are my thoughts on the stocks mentioned;

JFC looks promising at this point. Although the price is still overvalued, I think it's still reasonable to buy because of its superb fundamentals. Although JFC is on hot waters regarding the investigation of their alleged "illegal" and "unfair" labor practices, I believe that this will never affect the profitability of the company. I believe that this negative sentiment is a hint to buy as the share price drops along the way. A target of ₱278 would probably be realistic before the year ends.

TEL has attractive valuations but the fundamentals are scary. There's no question I would totally stay away from this for now. There's also the threat of the third telco that can affect their duopoly with Globe Telecom (GLO). Weak fundamentals and negative sentiments are all over TEL right now and that's what keeping it discounted.

URC's strong fundamentals and attractive valuation is also a steal. The company has acquired biscuit and snack food companies in New Zealand and Australia so this is a good sign that profits will continue to increase in the future and thus is a buy for me.

This concludes my analysis of TEL, JFC and URC.

Don't forget to leave your thoughts and reactions in the comments section below.

Happy investing!