Gus Cosio says so

Ideas on the Philippine Stock Market

Can you imagine life without television?

6:00 pm    Wednesday       24 February 2010    Philippine Stock exchange Index   2981.14     (-1.062%)

The index dropped 1.08% today, and we saw similar declines in all the markets in the region with the exception of Shanghai.  The 100.97 point drop – 0.97% drop was sparked by a more than 10 point drop in the Conference Board Consumer Confidence Index.  The index declined to 46.0, far below the 55.5 reading expected by economists.  Investors viewed the drop as a headwind to a sustainable recovery.  It appears that many investors worldwide are losing confidence as well with practically all indices in the region declining.  Shanghai was the only exception.  the rest of Europe is also weaker today.

Quite ominously, TEL dropped 1.38%,  pulling down the index.  Practically all index stocks declined in price except MER and DMC.  The scuttlebutt on MER is that the Ramon Ang group is eventually selling out of Meralco and is just negotiating for a higher price.  speculators are on the prowl again for a possible tender offer if in case the controlling group of MVP acquires the shares that are expected to go into the block.  It looks like party time again for MER.  As for the rest of the index components, what I’m seeing are minor changes in price of one or two fluctuations and it does not worry me.

I’m trying to figure out which way we are headed in the near-term.  I know for sure that the secular move will eventually bring us higher than the top of the trading range which I perceive to be 3100.  I just want to maximize on my buying moves by following good but undervalued stocks.  One that comes to mind is GMA7/GMAP which I had identified early in 2009 as a stock that will surely perform, and it did.  However, in the last few months, this stock has actually been moving down from its 8.80 peak seen last October.  I guess investors are worried that with the aggressive expansion that ABC5 is doing, it might affect the market position and market share of GMA7.

I am of th opinion that ABC5 is too small a player to dent the earnings juggernaut of GMA7.  Present management had been pursuing a strategy of controlling production costs rather than pay through the nose for superstar talent fees.  That is not likely to change.  Personally, stars are a dime a dozen in this country.  I don’t even remember the names of these celebrities except for Jericho Rosales; and I only recall his name because he is in the surfing circle of my sons.  What I am saying is that i do not think that GMA will go on a bidding war for stars and talents.  So far, they have been maintaining their ratings in the time slots that they have been targeting.

Here are some fundamentals on GMA7/GMAP:  Trailing 12 months Earnings Per Share is  PHP0.56 which brings the trailing P/E  at 12.97.  Dividend yield is 4.27%.  GMA  will most likely exceeded the 2009 net income guidance of  PHP2.8bn.  Bottom line growth  was on the back of  an advertising rate increase of  10%, implemented last April 2009, even as ad minutes fell 2.5%, faster than industry’s -1.5%.  In 2010, we expect net income to grow more than 20% with earnings around PHP3.4bn.    Top line drivers will be: (1) premium pricing for political ads which is estimated to  add roughly 1,980 ad minutes sold in 1Q10; GMA estimates political advertising revenues to be worth more than PHP500m for all of 2010.  (2) Another 10% increase in advertising rate/minute.  (3) Return of volume advertisers to regain lost market shares.

One reason why I like broadcasting is that TV/Radio frequency franchises are a limited resource.  In a modern society, media is almost like a public utility – can you imagine your life without TV or radio?  Among broadcasters in the country, GMA7 is the low-cost producer which has critical mass, and I think it would not be ignored by the market for a long time.


February 24, 2010 - Posted by | Financial markets in Asia


  1. On top of the drop in consumer confidencce index, the market is also nervous about the Bernanke testimony in congress today, there is a big chance the the Fed will pull the plug on near zero interest rate policy and begin raising the federal funds target rate sooner than expected… I am looking at another sell-off in wall street today..

    Comment by Mike Nacua | February 24, 2010 | Reply

  2. bought this stock in the lower 4 petot levels… i like!

    Comment by dingdong | February 24, 2010 | Reply

  3. What about ABS? I don’t know much about these industries, but the things you said about GMA should also apply to ABS-CBN, shouldn’t it?

    Comment by Nicole | February 25, 2010 | Reply

    • Nicole,
      Theoretically, it should but GMA is a lot more efficient in producing bottom line results. Their revenues are only 60% of ABS but their net income is almost double. They are what analyst term as the low cost producer in their industry. I would sell ABS and Buy GMA7/GMAP for this fundamental reason.

      Comment by Gus Cosio | February 25, 2010 | Reply

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