Stock Commentary

Quick market takes

Merkado Barkada

November 9, 2023 | 8:30am

1. A Brown Company [BRN 0.70, down 1.4%; 65% avgVol] [link] board of directors approved an equity raise of up to P1.5 billion through the sale of a tranche of preferred shares under BRN’s shelf registration. The tranche will include 15 million preferred shares, priced at P100/share, just like the previous tranche that BRN sold two years ago in November of 2021.

MB quick take: A shelf registration is when a company gets pre-approval for a bond or preferred shares sale, where the SEC approves the overall total of all the planned fundraising activity (like here, the sale of 50,000,000 preferred shares), and the company is then free to issue the bonds or preferred shares in batches (or tranches) as it sees fit over the following three years. It reduces the overhead for BRN by allowing it to avoid having to go through the whole approvals process for each individual tranche, and it allows BRN to only begin “paying” (in dividends) for the funds raised when it needs that funding. If BRN sold the prefs all at once two years ago, they’d have been paying dividends on the whole lot regardless of whether they actually had a compelling reason to raise the money.

2. Balai ni Fruitas [BALAI 0.47, up 4.4%; 413% avgVol] [link] reported a Q3 net income of P16.3 million (+49% y/y), and a 9M net income of P41.1 million (+77% y/y), driven by both the inclusion of new stores thanks to BALAI’s store expansion program and the strong performance of BALAI’s existing stores. BALAI’s 9M revenues increased 65% to P387 million, while BALAI managed to increase its net margin from 10% to 11% over the same span. BALAI noted that inflation in the price of its raw materials was the most challenging headwind so far in 2023, but that it was able to navigate the challenge using “strategic price increases” and diversifying its supplier base.

MB quick take: BALAI isn’t an exceptionally high-margin business, so there’s only so much inflation that it can take in the cost of its inputs (like ingredients) before it absolutely must pass those costs on to consumers through price increases to stay afloat. Price increases are more of an art than a science, especially in a price-conscious marketplace like the one we have here in the Philippines, so it’s impressive to me to see BALAI grow its top and bottom lines while also increasing its prices. All the business owners I know break out into a cold sweat when they consider raising prices. The fear of losing clients to cheaper alternatives is real.

3. MRC Allied [MRC 1.66 ?9.8%; 49% avgVol] [link] was halted for an hour at the start of trading yesterday to allow the PSE and traders to become acquainted with all of the changes that flowed from the change in MRC’s par value from ?0.10/share to ?1.00/share.

MB quick take: Technically, adjusting the par value of the common shares in this way just results in a 10-for-1 reverse stock split, where 10 shares are (for lack of a better word) “merged” together into one share, automatically, on the date that the change is scheduled to take effect. Sure, that change will impact the price (x10), and will adjust the outstanding shares and issued shares (/10), but it doesn’t have any impact on the business itself or the value of what each share represents. If you owned 1% of MRC’s outstanding shares before the change, you still owned 1% of MRC’s outstanding shares after. It’s just that your 1% holding was now equivalent to 8.5 million MRC shares instead of 85 million. I say “technically” nothing changed because the stock still managed to drop 10% on the day on no news other than the implementation of this par value change. Somebody didn’t like it.

4. Apollo Global [APL 0.02 unch; 61% avgVol] [link] still has yet to begin commercial operations, according to its Q3 Quarterly Report. While the company posted a P10 million net loss for the quarter, the loss was a 44% improvement over its Q3/22 loss of P19 million, which APL attributes to a “decrease in professional fees”.

MB quick take: APL isn’t really a serious company. I mean, they might be, I remain open to APL demonstrating to us that it does actually intend to do the work that it’s been teasing us with since 2021, but it feels like I follow what APL does (or doesn't do) now as a hobby. The list of reasons why APL hasn’t done one single day of work ripping ore out of the seabed is a long (and oddly repetitive) one, and if we’re being honest, it reads like the list of excuses from a shady dev team of a rugpull crypto project, posted to their dying Discord chat in response to a dwindling stream of “when launch?” pokes from confused bagholders. Will Q4 be more of the same?

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