To replace its legacy system supporting its Trust Division, this company has selected SS&C Aloha platform, also BLOOM tearsheet
To enhance its operations, AB Capital Group is set to leverage SS&C Aloha, an SS&C Technologies platform.
This integration aims to foster the launch and growth of AB Capital’s new private wealth sector. Furthermore, the collaboration will allow the expansion of AB Capital’s investment initiatives, replace an outdated system in its Trust division, and update vital infrastructure.
Meanwhile, the fintech platform GCash has forged a new partnership with the Philippine Stock Exchange and AB Capital to enable its users to directly invest in the stock market. With 69 million GCash subscribers, the integration has the potential to boost the Philippine retail investor base in a short timeframe, as articulated by the PSE President.
Today, we look at one of the institution’s unit investment trust funds (“UITF”). On top of examining the fund’s portfolio, we will provide you with the current Uniform Accounting Performance and Valuation Tearsheet for one of the fund’s largest holdings.
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Friday Uniform Portfolio Analytics
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AB Capital Group, a Philippine boutique financial services provider, has chosen SS&C Technologies’ SS&C Aloha platform to enhance its operations. This collaboration will enable AB Capital Group to launch and grow its new private wealth business and replace an outdated system in its Trust division.
SS&C Aloha provides intelligent technologies and capabilities to streamline comprehensive wealth processes to support AB Capital’s entire operational chain, from front to back office.
Meanwhile, GCash users will have the opportunity to invest in the stock market due to a collaboration between the Philippine Stock Exchange and AB Capital.
Launched in November 2022, GStocks will enable users to trade specific stocks, enhancing the existing GInvest service. With GCash’s substantial user base and the potential for market expansion, the AB Capital Chairman highlighted the significance of providing access to financial markets, even for those living below the poverty line.
Given this latest project as part of their IT investments, let’s also take a look at the institution’s other products, specifically a UITF it offers to its clients.
The AB Capital Equity Fund launched on December 4, 2006, is a UITF that aims to achieve for its participants’ long-term capital growth via investments primarily in Philippine equities listed in the Philippine Stock Exchange. The fund aims to surpass its benchmark which is the Philippine Stock Exchange (“PSEi”).
The fund is suited for individual and corporate investors seeking higher returns from stock market investments but with a long-term time horizon and aggressive risk profile.
- At its inception in December 2006, AB Capital Equity Fund’s beginning net asset value per unit (NAVPU) was PHP 100. The fund’s value initially shrunk to PHP 0.69 or 30% in December 2008 due to the Global Financial crisis. The PSEi as its benchmark shrunk by 32% on the same period.
- In May 2013, the fund’s NAVPU grew by 392% from its shrinkage in 2003 while significantly outperforming PSEi which grew by 287% following the exports jump in Japan and expectations of further interest rate cuts.
- The fund’s NAVPU was around PHP 3.40 until May 2015 before shrinking to PHP 2.59 or 24% in January 2016 when investors lost confidence in the market partly due to plummeting oil prices and China’s stock market drop. Meanwhile, the PSEi slightly outperformed the fund with a 20% shrinkage.
- After three years, the fund’s NAVPU climbed to PHP 3.34, a 29% growth from its price in January 2016. PSEi slightly underperformed by 27% growth during the same period. This is fueled by the optimism on positive economic figures due to economic expansion.
- However, in March 2020, with stocks in free fall, the fund quickly shrunk to PHP 1.92 or by 43% while the benchmark shrunk as well by 43%. This was after a two-day closure due to the Luzon-wide lockdown meant to contain the then-COVID-19 outbreak.
- Furthermore, the fund recovered in February 2022 by 57% growth but was followed by a shrinkage of 17% in September 2022 as the peso fell to a new all-time low of 59:$1 before closing at PHP 59.99 due to mounting inflation and recession risks.
- At the start of the third quarter of 2023, the fund and PSEi climbed the same by 13%. Since its inception, the fund outperformed its benchmark, recording a 176% growth versus PSEi’s 116% growth.
With the fund outperforming its benchmark, let’s take a look at the quality of the companies in its holdings. As-reported metrics would have investors believe that the fund’s portfolio consists of companies that don’t appear to break even. Uniform Accounting reveals the truth behind the companies this fund invests in.
The table below shows the top eight core non-financial holdings of AB Capital Equity Fund along with its Uniform return on assets (“ROA”), as-reported ROA, and ROA distortion—the difference between Uniform and as-reported ROA.
Most of the companies in AB Capital Equity Fund show as-reported ROAs below cost-of-capital levels, suggesting that they are not generating economic profit. Moreover, the fund is generating an average as-reported ROA of 5%, below the global corporate average returns of 6%.
However, on a Uniform Accounting basis, this UITF’s holdings have actually delivered a Uniform ROA of 12%, a profitability above the global corporate average.
The Uniform Accounting framework addresses financial statement inconsistencies attributable to the flaws present in the Philippine Financial Reporting Standards (“PFRS”). This enables investors to determine the true underlying performance of companies and avoid distorted financial analysis and valuation.
As such, it should not be surprising that when analyzing the non-financial holdings of AB Capital Equity Fund, the figures that easily stand out are the large discrepancies between Uniform ROA and as-reported ROA for these companies.
While at a glance, the difference between as-reported ROA and Uniform ROA may not seem that great, the distortion in percentage ranges from -11% to 375%, with PLDT Inc. (TEL:PHL), International Container Terminal Services, Inc. (ICT:PHL) and SM Investments Corporation (SM:PHL) having the highest positive distortions.
Among these holdings, only Globe Telecom, Inc. (GLO:PHL) is below the as-reported ROA, presenting a potential cause for concern. Companies such as this need to be closely monitored for drastic changes that could negatively affect the fund itself, especially when the support behind the stocks’ performance begins to wane.
As-reported metrics understate the profitability of PLDT, Inc., suggesting an as-reported ROA of 1%. In reality, this firm more closely resembles one that is highly profitable, with a Uniform ROA of 6% above the average cost of capital. In addition, the company has consistently generated returns of at least 2% over the past decade.
Similarly, as-reported metrics understate the profitability of International Container Terminal Services, Inc. with an as-reported ROA of 11%. In fact, its Uniform ROA is at 45%, when its lowest was 7% over the past decade.
Likewise, as-reported metrics understate the profitability of SM Investments Corporation, suggesting a below-average firm with an as-reported ROA of only 5% when this company actually has a 13% Uniform ROA.
By focusing on as-reported metrics alone, these companies look like anything but profitable businesses.
That said, looking at profitability alone is insufficient to deliver superior investment returns. Investors should also identify if the market is significantly undervaluing a company’s earnings growth potential.
This table shows the earnings growth expectations for the major non-financial holdings of the fund. It features three key data points:
- The two-year Uniform earnings per share (“EPS”) growth represents the Uniform earnings growth the company is likely to have for the next two years. The earnings number used is the value when we convert consensus sell-side analyst estimates according to the Uniform Accounting framework.
- The market expected Uniform EPS growth represents what the market thinks Uniform earnings growth is going to be for the next two years. Here, we show how much the company needs to grow Uniform earnings in the next two years to justify the current stock price of the company. This is the market’s embedded expectations for Uniform earnings growth.
- The Uniform EPS growth spread is the difference between the two-year Uniform EPS growth and market expected Uniform EPS growth.
On average, Philippine companies are expected to have 5%-6% annual Uniform earnings growth over the next two years. Meanwhile, AB Capital Equity Fund’s major holdings are forecasted to significantly outperform with a 9% projected Uniform earnings growth in the next two years, while the market is forecasting 10% Uniform earnings.
Most of the companies in AB Capital Equity Fund have positive Uniform earnings growth. Among these companies, Bloomberry Resorts Corporation (BLOOM:PHL) and Monde Nissin Corporation (MONDE:PHL) have the highest positive Uniform earnings growth spread.
The market is pricing Bloomberry Resorts Corporation’s Uniform earnings to shrink by 3% in the next two years, while sell-side analysts are projecting 55% growth for the company’s earnings.
Moreover, the market is pricing Monde Nissin Corporation’s Uniform earnings to grow by 4% in the next two years, while sell-side analysts are projecting the company’s earnings to grow by 29%.
Overall, as-reported numbers significantly understate the expected earnings of these companies, as shown by the Uniform-adjusted sell-side estimates.
Uniform Accounting metrics show that these mature but high-growth and high-return companies have intact business models that should drive economic profitability moving forward.
SUMMARY and Bloomberry Resorts Corporation Tearsheet
Today, we’re highlighting one of the largest individual stock holdings in the AB Capital Equity Fund, Bloomberry Resorts Corporation (BLOOM:PHL).
As the Uniform Accounting tearsheet for Bloomberry Resorts Corporation highlights, the company trades at a Uniform P/E of 12.5x, which is below the global corporate average of 18.4x and its historical average of 39.6x.
Low P/Es require low EPS growth to sustain them. In the case of Bloomberry Resorts Corporation, the company showed a 175% Uniform EPS shrinkage last year.
Sell-side analysts provide stock and valuation recommendations that poorly track reality. However, sell-side analysts have a strong grasp of near-term financial forecasts like revenue and earnings.
We take sell-side forecasts for Philippine Financial Reporting Standards (PFRS) earnings as a starting point for our Uniform earnings forecasts. When we do this, Bloomberry Resorts Corporation’s sell-side analyst-driven forecast shows that Uniform earnings are expected to grow by 139% and 1% in 2023 and 2024, respectively.
Based on the current stock market valuations, we can back into the required earnings growth rate that would justify Bloomberry Resorts Corporation’s PHP 10.78 stock price. These are often referred to as market-embedded expectations.
Furthermore, the company has an earning power 1x the long-run corporate averages. Moreover, its cash flows and cash on hand are below its obligations within five years, and it also has an intrinsic credit risk of 310bps. Together, these indicate a moderate operating risk and moderate credit risk.
Lastly, Bloomberry Resorts Corporation’s Uniform earnings growth is below peer averages and below peer average valuations.
About the Philippine Markets Daily
“Friday Uniform Portfolio Analytics”
Investors who don’t engage in the buying or selling of securities for a living often rely on professionals to manage their own investments within the scope of their investment policies.
With so many funds and managers out there, it can get confusing and difficult to decide which one best suits your needs as an investor.
Every Friday at the end of the month, we focus on one fund in the Philippines and take a deeper look into their current holdings. Using Uniform Accounting, we identify the high-quality stocks in their portfolio which may not be obvious using the as-reported numbers.
We also identify which holdings may be problematic for the fund’s returns that they would need to reconsider from a UAFRS perspective.
To wrap up the fund analysis, we highlight one of their largest holdings and focus on key metrics to watch out for, accessible in our tearsheets.
Hope you’ve found this week’s focus on the AB Capital Equity Fund interesting and insightful.
Stay tuned for next month’s Friday Uniform Portfolio Analytics!
Regards,
Angelica Lim
Research Director
Philippine Markets Daily
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