PSE Points to Ponder

MM is now trading at 3 times its IPO price of 1.00 a share. It is just two months since the IPO but its shares is already 3 times the IPO price and this is despite the fact that the IPO proceeds has not yet been fully used. Clearly the market has priced in the future prospect of the MM business. Groceries and convenience stores are capital intensive and low margin businesses and those are the businesses of MM. Established player in this industry are PGOLD , MRSGI , SM , RRHI , and SEVN . The proceeds of the IPO once deployed maybe will be able to add a handful to a dozen operating stores. The additional stores will only produced marginal income for MM. The key revenue actually for MM is the franchise fee. The margin for that is almost a 100% percent. But for now that revenue is still a footnote in the other operating income. The COVID-19 pandemic if we take note of the events around us is battering strong the small and medium enterprises all over the country. Banks are tighten...

MM and AREIT are two different public offerings, thus, the difference in results. Holders of AREIT may have missed the difference of the two public offerings. MM is a pure initial public offering. It means shares offered to the public comes from the unissued shares of MM or the so called “primary shares.” All the proceeds of the MM initial public offering went into the coffers of MM. The proceeds of the public offering more than doubled the size of MM’s balance sheet. From 0.9 Billion prior to the IPO to around 2.4 Billion post-IPO. Because the proceeds of MM’s IPO went to its coffers, MM will be able to utilize the proceeds of its IPO to grow the business and create more value to its shareholders including those who participated in the IPO. The more value a company creates the more the market rewards, thus, the rise in value of the company’s shares. In AREIT, the total proceeds of around 13.5 Billion Pesos of the public offering went to Ayala Land,...

MM surge in value could not be justified by fundamentals. Before the public offering (IPO), MM’s balance sheet is at 915 Million Pesos. The proceeds of the IPO at 1,500 Million Pesos (1.5 Billion) doubles MM’s balance sheet. However, the balance sheet growth will not translate into a magnificent net income growth. There is a high barrier to entry in the non-discretionary retail industry. The dominant players are well entrenched and have long established an economy of scale in their operations. SM Investments ( SM ) is well entrenched not just in SM Malls but also in third party-owned locations with Save More, Watsons, SM Supermarket, Waltermart, and Alfamart. It is not just SM but also Robinson Retail Holdings ( RRHI ) with Robinson Supermarket, Ministop, The Generics Pharmacy, Rustan’s, etc.; Puregold ( PGOLD ) with Puregold, S & R, ThreeSixty Pharmacy, etc.; Philippine Seven Corporation ( SEVN ) with7-11; Metro Retail Stores Group, Inc. ( MRSGI ) with Met...