Philippine Markets Newsletter

Uniform Accounting shows that this asset management firm’s newest mutual fund has an earning power almost 2x as-reported numbers.

July 2, 2020

This firm’s newest mutual fund focuses on investing in companies with immense growth opportunities.

While as-reported numbers show poor performance from the fund’s top holdings, Uniform accounting shows that its portfolio is severely undervalued.

In addition to examining the fund’s portfolio, we are including fundamental analysis of one of the fund’s largest holdings, providing you with the current Uniform Accounting Performance and Valuation Tearsheet for that company.

Philippine Markets Daily:
Friday Uniform Portfolio Analytics
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We’ve talked about two of ATRAM’s mutual funds before, ATRAM Alpha Opportunity Fund and ATRAM Philippine Equity Opportunity Fund.

This week, we are focusing on ATRAM’s newest mutual fund, Soldivo Strategic Growth Fund.

Soldivo Strategic Growth Fund’s objective is to achieve capital appreciation by investing in companies with immense growth opportunities.

At its inception on October 8, 2014, Soldivo Strategic Growth Fund had a net asset value per share (NAVPS) of PHP 0.96.

After peaking at PHP 1.02 in April 2015, the oil price crash caused the fund’s NAVPS to drop to PHP 0.79, a loss of 23%. Its benchmark, the Philippine Stock Exchange Index (PSEi), incurred a loss of 22% over the same period.

Thereafter, the fund rebounded and approached its peak of PHP 1.02 in January 2018, before uncertainties about Brexit and the U.S.-China trade caused the fund’s NAVPU to fall by 21% to PHP 0.80. Similarly, the PSEi fell by 21%.

The fund ended 2019 with a NAVPS of PHP 0.85 before plummeting by 41% to a low of PHP 0.50 in March 2020 due to the pandemic. Its benchmark didn’t do much better, incurring a loss of 39% over the same span.

However, both the fund and its benchmark have rebounded since then. The fund’s NAVPS increased by 26% to PHP 0.63, while the PSEi rose by 29%. Year to date (YTD), the fund and its benchmark incurred losses of 25% and 22%, respectively.

With the fund’s portfolio being down right now and as-reported metrics showing investors misleading values, it seems that ATRAM invested in unprofitable companies. However, Uniform numbers show that these companies have almost 2x the earning power in actuality.

The table below shows the top non-financial holdings of Soldivo Strategic Growth Fund along with their Uniform return on assets (ROA), as-reported ROA, and ROA distortion—the difference between Uniform and as-reported ROA.


Several companies in this fund show as-reported ROAs that range around and below global cost-of-capital levels, suggesting that they are not generating economic profit. However, Uniform Accounting reveals that these companies have strong returns, with an average Uniform ROA almost 2x the as-reported returns.

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 Soldivo Strategic Growth 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 15% to 197%, with Ayala Corporation (AC:PHL) and SM Investments Corporation (SM:PHL) having distortions greater than 100%.

As-reported ROA understates the profitability of AC, suggesting a below-average company with an as-reported ROA of 4%. In reality, this leading conglomerate is an above-average company with an 11% Uniform ROA, almost thrice the as-reported number.

Similarly, SM is not a 6% ROA firm like the as-reported numbers show. It is, in fact, a high-quality company with a Uniform ROA twice that value at 12%.

By focusing on as-reported metrics alone, ATRAM would never pick most of these companies because they 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 the company’s earnings growth potential.

Soldivo Strategic Growth Fund made investments in companies with unreasonably low earnings expectations.


This table shows the earnings growth expectations for the major non-financial holdings of the fund. It features three key data points:

  1. The two-year Uniform 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 of when we convert consensus sell-side analyst estimates to the Uniform Accounting framework.
  2. 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 by 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.
  3. 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 6% annual Uniform earnings growth over the next two years. Meanwhile, Soldivo Strategic Growth Fund’s top holdings are forecast to double that with a 12% projected Uniform earnings growth in the next two years.

The market, on the contrary, is seeing lower earnings for these companies with Uniform EPS growth of 4% over the next two years.

Among these companies, EEI Corporation (EEI:PHL) and SM have the highest positive Uniform earnings growth dislocation.

The market is seeing immaterial Uniform earnings growth for EEI, but analysts are projecting a robust 63% earnings growth in the next two years.

Meanwhile, the market is mispricing SM’s Uniform earnings to shrink by 11% in the next two years. However, sell-side analysts are expecting the company’s earnings to grow by 11% moving forward.

Overall, as-reported numbers would have investors incorrectly conclude that this portfolio consists of low-quality companies with low earnings growth expectations. However, it is clear as day that ATRAM invests in quality companies with above-average profitability and undervalued earnings growth potential.

SUMMARY and EEI Corporation Tearsheets

Today, we’re highlighting one of the largest individual stock holdings in Soldivo Strategic Growth Fund, Inc.—EEI Corporation (EEI:PHL).

As the Uniform Accounting tearsheet for EEI highlights, it trades at a Uniform P/E of 9.3x, well below global corporate averages and its historical averages.

Low P/Es require low EPS growth to sustain them. In the case of EEI, the company has recently shown an 18% Uniform EPS growth.

Sell-side analysts provide stock and valuation recommendations that poorly track reality. However, sell-side analysts have a strong grasp on near-term financial forecasts like revenue and earnings.

We take sell-side forecasts for PFRS earnings as a starting point for our Uniform earnings forecasts. When we do this, EEI’s sell-side analyst-driven forecast shows that Uniform earnings will grow by 162% in 2019 and 1% in 2020.

Based on the current stock market valuations, we can back into the required earnings growth rate that would justify PHP 5.02 per share. These are often referred to as market embedded expectations.

The company can have immaterial Uniform earnings growth in each of the next three years and still justify current price levels. Sell-side analysts’ expected 1% earnings growth for EEI is just above what the current stock market valuation requires.

The company has an earning power below global corporate averages—based on its Uniform ROA calculation. However, with cash flows and cash on hand consistently exceeding obligations, EEI has a low dividend risk.

To conclude, EEI’s Uniform earnings growth is well above peer averages. Moreover, the company is trading below average peer valuations.

About the Philippine Market Daily
“Friday Uniform Portfolio Analytics”

Investors who don’t engage in the buying or selling of securities for a living oftentimes 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, 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 Soldivo Strategic Growth Fund interesting and insightful.

Stay tuned for next week’s Friday Uniform Portfolio Analytics!


Angelica Lim
Research Director
Philippine Markets Daily
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