[ANALYSIS] Aboitiz Power Corporation beats expectations

Among those listed companies that reported favorable earnings at the end of the third quarter is Aboitiz Power Corporation, whose stocks are transacted under the trading symbol AP.

AP reported a net income of P26.7 billion. According to its Securities and Exchange Commission Form 17-C filing, this is 37% higher than the P19.52 billion it reported in the first nine months of last year, 2022. If non-recurring items are excluded further in the comparison, AP’s present earnings growth rate would have been better by at least 45%.  

AP’s reported earnings for the nine-month period is also regarded to be already about 87% of full-year consensus estimates.  

As such, AP could just be one of those companies that will become winners in the market all the way up to the end of the year.  

Good defensive utility stock

Incorporated on February 13, 1998, AP was established primarily as “a holding company for the Aboitiz Group’s investments in power generation and distribution as well as retail electricity and other related services.” It was listed with the PSE following an initial public offering (IPO) of its common shares in July 2007.
The company’s business operations are divided into four strategic business units. These are:

• power generation
• power distribution
• retail electricity services
• distributed energy

AP’s power generation portfolio includes stakes in renewable and non-renewable generation plants. Its investments in renewable energy are all managed under Aboitiz Renewables, Inc. (ARI) while its non-renewable energy portfolio is placed under Therma Power, Inc. (TPI). Both ARI and TPI are 100% owned subsidiaries of AP.
For AP’s energy distribution business, it “has nine distribution utilities, which collectively supply electricity to franchise areas covering a total of 18 cities and municipalities and five economic zones across Luzon, Visayas, and Mindanao.”

Being in the energy and power industry, this makes AP a defensive stock investment. Its business is not critically affected by poor consumption, such as during high inflationary times. Under these times, defensive stocks are resilient. They can make stable earnings – and give consistent dividends if they would – regardless of the state of the overall economy or the stock market. Demand for AP’s products, like energy and power, is not severely affected during the low phases of the business cycle.

Market performance

AP’s reported earnings based on its first nine months of operation now translates into an earnings per share of P3.66.  

As of late, AP has a free float level equivalent to 19.98% and a foreign ownership limit of 40.0%. It has a 52-week price high of P40.10 recorded on February 14, 2023 and 52-week price low of P29.40 on September 21, 2023 – and had a total of 7.21 billion outstanding shares.  

As of late, however, AP has a total of 7.36 billion issued and listed shares. 

On Tuesday, November 21, AP closed at P36.70 apiece. This is 8% higher than its market price of P34.05 per share at the beginning of the year. While growth is in the single digit, remember that PSEi’s year-to-date performance has fallen to -5.40%.  

One practical way to understand whether AP’s current market price is good enough or not (like if it’s undervalued or overvalued) is to try extrapolating its reported earnings of P3.66 per share for the nine-month period based on the PSEi’s average P/E multiple of 13.41x.  

This should amount to P49.08. In this regard, AP’s closing price of P36.70 is trading 33.73% below the average price of component stocks in the PSEi basket.  

As further disclosed, the company also has about 1000MW of projects in the pipeline for the next three years, about 80% of which have been already contracted.  

It is thus realistic to assume that AP will be able to achieve an annualized earnings figure of P4.88 per share derived from its nine-month performance.  

Together with the company’s ongoing share buyback program, AP’s market price should head higher than lower toward the end of the year.  

In addition to the financial math is AP’s management quality. AP has a management that has a long record of competence and reputation, especially in the enhancement of stockholders’ value. Under this score alone, AP deserves the “BUY” slip.   

Watch out for our next stock pick next time. – Rappler.com

The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com.