Stock Commentary

Quick Take: On NGCP and 2 more market updates

Merkado Barkada
Quick Take: On NGCP and 2 more market updates

Alternergy [ALTER 0.93 5.1%; 117% avgVol] [link] disclosed that the SEC approved its equity restructuring to eliminate a P120 million deficit using some of ALTER’s additional paid-up capital. This transaction was approved by ALTER’s board in late January, and was disclosed in ALTER’s prospectus during its IPO process.

MB Quick Take: This is really just an accounting/paper move that doesn’t have any impact on ALTER’s operations or cash flows. While the move does improve the “look” of ALTER’s financials, the main benefit to shareholders (and to ALTER’s owners) is that it allows the company to declare dividends in the future. Companies cannot declare dividends with a retained earnings deficit. This move got rid of that deficit.

National Grid Corporation [SGP 8.50 4.5%; 184% avgVol] [link] Assistant VP Cynthia Alabanza, in response to allegations from a Senate panel that NGCP was distributing income to shareholders at the expense of delivering electricity under its franchise, said: “I don’t know when making money became so demonized.” She went on to say, “Again, when you talk about dividends, if you look at prevailing law, you’re not supposed to retain dividends. You’re supposed to give it out. In fact, you will be penalized if you retain dividends beyond your paid-up capital.”

MB Quick Take: Ms. Alabanza is trying to hide behind capitalism to protect herself and SGP from criticism, when NGCP's success has absolutely nothing to do with capitalism. It’s important to remember that NGCP’s profits are due to its government-legislated monopoly on the distribution of electricity in this country, not from excellence on the open market. It’s also important to remember that dividends are declared after a long process of budgeting and allocating for future needs, like capex, so a declaration of dividends does come at the expense of capex spending. Earnings and profit are not just “cream” for the owners, but are actually the first source of capital to fund future growth.

SP New Energy [SPNEC 1.47 1.3%; 36% avgVol] [link] received some assistance from Nicky Franco, head of research for Abacus Securities, which was the issue manager and lead underwriter on SPNEC’s IPO back in December. Mr. Franco solicited questions about SPNEC on Twitter, and answered some of those questions in an informative thread that you can read here. Mr. Franco talks about SPNEC’s ethical issues, the share-swap, future profitability, the stake sale to Metro Pacific, SPNEC’s valuation, and several other topics. It is remarkably refreshing to see this level of accountability and involvement from an underwriter. Kudos to Mr. Franco for interfacing with the investing public.

MB Quick Take: I’m not co-signing on Mr. Franco’s answers, just exposing readers to a very informed take on SPNEC’s past, present, and future. One quibble that I have is in Mr. Franco’s response to the question about whether IPO buyers were “fleeced” because of SPNEC’s abrupt change in purpose from a discrete non-operational Nueva Ecija solar project, to a behemoth backdoor injection of Solar Philippines projects. Mr. Franco said that IPO buyers were not fleeced because those buyers are “still sitting on gains”, and “had the chance to exit at P2.30+”. I think that evades the question (purpose/plan), and points to something (performance) that is entirely irrelevant. In my opinion, it cannot be debated: what IPO buyers experienced after the IPO was materially different from what they bought in December. That isn’t changed just because the stock price just happens to be above the IPO price. Mr. Franco’s point, that buyers had the opportunity to exit at a higher price than their purchase price is valid and is perhaps the only silver lining in this answer, but it doesn’t suddenly make what has happened any less weird. If the price were lower than the IPO, buyers would have been misled and fleeced. But since the price is above, they were only misled (fleeced implies a loss). Wait, what about the IPO buyers who sold on the first day for less than the IPO price? This is why our evaluation of “what happened” shouldn’t be informed by performance.



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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.

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