Market Rider: Major market rally is possibly ahead

While the market’s trading results last week were not that outstanding, there seems to be subtle signs that it is headed for a major rally.

For one, the market ended higher by 93.74 points, or 1.75 percent, on a weekly basis. Second, out of the five trading days of the week, the market had three days of relatively strong gains.

This is not that impressive but it is not bad at all. Also, its second-day loss on Friday was minimal. The market lost only of 3.9 points, or 0.07 percent, from the previous day’s level.

On top of these, the market’s trading results hit new highs.

The market on Thursday surpassed both its last recorded session high of 5,403.16, which was established on July 4, as it hit 5,451.96. On the same day, it also established a new record trading close at 5,443.74, 74.14 points, or 1.36 percent, higher than the last record close of 5,365.70 posted on July 3. While the market suffered a trading loss for the day of 3.9 points, or 0.07 percent, it closed at 5,439.85, which was still higher than the last record close.

With these observations, the market is certainly on a new trading direction.

F Gen

In the midst of these developments, several stocks displayed some of their value potential, one of which is First Gen Corp. (FGEN).

FGEN is the holding company for the power generation and energy-related businesses of the Lopez Group. It was incorporated on Dec. 22, 1998, and listed on Feb. 10, 2006. It’s one of the biggest independent power producers in the country.

FGEN is engaged in this business through its operating subsidiaries, which are all operational, except the Bauang plant.

Its subsidiaries are: First Gas Holdings Corp., Unified Holdings Corp., First Gen Renewables Inc., Prime Meridian Powergen Corp., First Gas Power Corp. and First Gas Pipeline Corp.

The power plants operated by FGEN included the 1000-megawatt Santa Rita natural gas-fired power plant; FGP, which operates the 500-MW San Lorenzo natural gas-fired power plant; the 1.6-MW FG Bukidnon mini-hydroelectric power plant of FG Bukidnon Power Corp. via First Gen Renewables Inc. and the 132-MW Pantabagan-Masiway hydroelectric power plant.

FGEN also “has an effective 49 percent economic interest in listed Energy Development Corp. (EDC), the world’s second-largest producer of geothermal energy.”

“As of Dec. 31, 2011, First Philippines Holdings Corp. (FPH) directly owned 66.20 percent of the common shares of the company and 100 percent of FGEN’s voting preferred shares. FPH is the ultimate parent company of FGEN.”

As of last Friday, the last traded price of FGEN was P20.20 per share.  It hit a session’s high of P20.60 and a low of P20.15 per share.

It has a total of 3,363,350,488 outstanding shares (all listed) and a free float equivalent to an average of 32 percent and has a constitutional ownership limit to foreign investors equivalent to 40 percent.

Based on its financial history in the last three years, FGEN did not have extraordinary earnings until this year. Like the Philippine economy, the company’s earnings dramatically shot up in the first quarter of this year, that when you sum its two quarter performance for the year, FGEN has a very favorable first-semester performance.

Per the PSE website, FGEN’s net earnings for 2011 amounted to about P0.346448 per share. For the first six months of this year, earnings have jumped to a high of P1.03003 per share—growing by no less than 394.63 percent year on year.

Based on the PSE website, FGEN has recorded a 52-week high of P20.60 (its session’s high on Friday) and a 52-week low of P12.80 per share. The difference between the two prices is equivalent to 60.94 percent.

In 2010, FGEN had a total volume of 2,088,104,802, about 580,029 shares in daily volume (total volume divided by 360 days) while in 2011, daily volume was down by 38.37 percent to about 357,472 shares. This explains why the price of FGEN had a 52-week low of P12.80 per share.

Since the announcement of its first-quarter earnings results, however, the market price of FGEN has been going up. It hovered between P14.00 to just below P16.00 per share.

FGEN’s price, based on Friday’s close, has already gone up by 25 percent from its level 30 days ago.

But when compared to the lowest price of FGEN in the last 30 days, when FGEN traded at about P18 per share, the price of FGEN has only gone up by about 8.6 percent.

FGEN’s last recorded dividend payment was in 2007.

Capturing the price run-up in FGEN by buying into First Philippine Holdings Corp. (FPH)—as some would do it—is also a sensible strategy because FPH owns 66.2 percent of FGEN. FPH will benefit from the rise in price of FGEN on account of its holdings in latter. The downside is that FGEN’s value will not necessarily be equally reflected in FPH. This is because it only enjoys “passive” claim on the income of FGEN.

Other market stars

A similar price run-up is happening in Bloomberry Resorts Corp. (BLOOM).  In the last one month or so, the price of BLOOM has gone up by a low of 20.0 percent and a high of 33.0 percent.

It is reported that BLOOM will open ahead of all local rivals. It will open by the end of the year as scheduled while the others were facing delays in their opening.

There is a lot of earnings expectation in BLOOM, too. This is because it has a bigger equity share than its foreign partner unlike the other local companies, whose foreign partners have greater shares or no less than one half share in the gaming operations’ income.

Another issue whose price started to move up, too, is Alliance Select Foods International Inc. (FOOD). It recently disclosed its plan to list in Singapore. The 90-day period required to determine its listing price has started. The listing of its shares is expected to happen by the end of the year or early next year.

It is believed that listing the company in the equity board of Singapore will allow a better appreciation or valuation on anticipated earnings FOOD will soon start to realize as a result of its aggressive expansion program, through the acquisitions of more tuna fishing and factory operations abroad. The company is confident that this is the way to better enhance the valuation of its future earnings.

Bottom-line spin

With all this happening, the market may just finally complete that “saucer” pattern, which I said was forming. It’s a breakout pattern that may just lead to a major rally, soon.

(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach the Market Rider at [email protected], [email protected] or at www.kapitaltek.com.)