Gus Cosio says so

Ideas on the Philippine Stock Market

Busy, busy, busy

I’ve been very busy working on matters that I have to attend to that I haven’t had a chance to write.  Our firm is having a business outlook briefing in Cebu on Friday, and among other things, I have had to make some arrangements there.  Recently, I did point out to readers that I thought PIP was a good buy at this point, so let me share with you a piece that was sent to me by my broker  just now.  This is not my opinion, but I think the ideas are pretty reasonable.

Quote

ALERT! Pepsi Phils may triple profits if Coke raises prices”
– PIP sugar needs for 1H2010 are hedged.
– Secret is in diverse product range. Cola is notmain product, unlike Coke Phils, whose Cola drink is the main product.
– Among PIP sodas, bestseller is Mountain Dew caffeinated lemon drink
– Among NCBs, Gatorade, in returnable bottles, is fast gaining market share from sugary carbonated softdrinks at the corner store level.
– PIP led trend by selling supposedly “premium” Tropicana Orange Drink in returnable bottles at corner stores. Other bev makers limited “premium” products to supermarkets. PIP proved there was a larger market outside the A and B segments
============ ========= ========= ========= ========= =======
PIP – Sugar is 30% of CoGS, but fastest growing segments use less sugar.
PIP will be affected, but Coke Phils will be more affected. PIP is hedged for 1H10 useage. If price-leader Coke raises prices P1.00 in response to higher sugar prices Pepsi may also raise prices to keep up, but PIP has a cheaper cost structure, is hedged for 1H10 consumption, ergo net margins will jump and profits could triple for PIP…and there may be a special dividend.
Remember that the PIP turnaround was engineered by the Hong Leong Group which demands a return on investment. In 2009 PIP declared special dividends.

We expect PIP’s NCB growth to be driven by Gatorade which uses less sugar versus cola drinks (Gatorade in returnable bottles is in the same price segment as carbonated beverages. In hot, humid Philippines, the lower sugar, ion replacement sweat drink is a superior choice vs. softdrinks to beat the heat. More importantly, it’s possible to drink several gatorades and not feel sick and sticky unlike high sugar softdrinks).  Note that price-leader Coke is still reeling from huge losses (P13.6b in 2007 and P1.4b in 2008).  Thus, the prevailing high sugar prices will tend to hurt Coke more than PIP.

Unquote

I like PIP because of my view that consumer stocks will perform in 2010, so I hope the foregoing broker alert helps you in your views about PIP.

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January 20, 2010 - Posted by | Financial markets in Asia

6 Comments »

  1. Thanks sir gus. This somehow removed my skepticism on PIP after it dropped by a few cents after i bought it last week. Good observations, too. Coke has diversified its product base to cover NCBs and “waters,” but these segments have fairly grown in EMEA, and not very much in the Phils (yet). Good to hear that PIP has gone further here!

    Comment by J | January 20, 2010 | Reply

    • Josh,
      May I suggest that if you buy a stock, be sure it is one that you understand completely so that you won’t be distracted by its price movements. Also, learn to be prudent in your buying activity rather than one who simply chases prices. One thing I learned from what I read from Warren Buffet is that if you like a stock, you should be happy when it goes down because you can buy some more of it cheaper. This also tells me that if you enter the market, be sure of your time horizon because if you’re there merely to punt the market, you shouldn’t be afraid of taking losses on quick trades.

      Comment by Gus Cosio | January 20, 2010 | Reply

      • Alright sir! Thanks a lot, I appreciate that.

        Comment by J | January 20, 2010

  2. I’ve read that URC is best positioned to seize market share because it has its own sugar mill. URC I think is already too expensive though, but I guess this is a stock to watch in case the market suffers from a deep correction right?

    I agree with you on PIP though and I am also looking to buy this stock on dips.

    Comment by Warren | January 20, 2010 | Reply

    • We think that URC is going to continue to do better. My suggestion is to keep updated on info on the stock and if nothing goes negative but the stock corrects, start accumulating.

      Comment by Gus Cosio | January 21, 2010 | Reply

  3. Thanks.

    Comment by Warren | January 21, 2010 | Reply


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