Petron shares’ value slide by nearly 15% after block sale from retirement fund

MANILA, Philippines—Shares of the Petron Corp. slid by nearly 15 percent on Wednesday after its retirement fund announced the sale of a substantial block at a steep discount.

However, the consequent rise in public float alongside the price decline to what many believe to be a “bargain” price level rekindled interest in the country’s leading oil firm.

The Petron Corporation Employees’ Retirement Plan has put up for sale 695.3 million common shares of the company at P11 per share through the local stock exchange for settlement on Jan. 24. This represents a P7.65-billion block price for the 7.4-percent stake to be placed out by the retirement fund.

The sale was priced at a 17-percent discount to Petron’s closing price of P13.30 per share on Tuesday, resulting in a sharp decline to P11.30 per share on Wednesday. The sell-down on Petron, the most actively traded stock in the local bourse, also dampened trading on parent conglomerate San Miguel Corp. even as the overall stock market index surged to a new all-time high.  SMC shares fell by 1.35 percent to P116.50 per share.

But many analysts say the drop is an opportunity to buy into Petron at a lower entry point.  The improved stock trading liquidity is also seen as good for its stocks moving forward.

At present, only 7.5 percent of Petron’s shares are held and traded by the public.  The Philippine Stock Exchange requires companies to maintain a public ownership of at least 10 percent to remain listed on its bourse.

Petron president Eric Recto said the shares to be placed out by the retirement fund to new investors would widen the company’s public float, thereby making it compliant to the PSE’s minimum requirement.   With this transaction, the public float will thus rise to nearly 15 percent.

As of Wednesday’s closing, Petron had a market capitalization of about P124.68 billion.  Despite its large market capitalization, which was larger than the Semirara Mining Corp.’s P80.5 billion or Manila Water Co.’s P43 billion, Petron is not part of the main-share PSEi largely due to insufficient stock trading liquidity.

Stock market veteran Wilson Sy, director at Philequity Management Inc., said the transaction was cheap relative to Petron’s prospective earnings for 2012 although not really a bargain compared to its earnings for 2011.

“But considering how the company is doing now, it’s reasonably priced. We’re looking at a 30-percent growth in revenues and earnings this year,” Sy said.

This doesn’t mean that a dramatic rebound in Petron shares will happen immediately. Sy said Petron’s shares would likely stay at current levels until the buyers of the shares placed out by the retirement fund would have flipped.

“Petron is a bargain at P11 (per share) considering its product and geographic expansion strategy. The unloading of the retirement fund should be seen as an opportunity by investors,” said Jose Mari Lacson, head of research at local stock brokerage Campos Lanuza & Co.

“Although the sharp share price decline is expected, this shift in demand-supply is only temporary. Viewed with a long-term investment horizon, the share sale will unlock the value of Petron by increasing the liquidity of the stock and help finance the expansion of the company,” Lacson said.