First Philippine Holdings Corporation (FPH) is the holding company controlling First Gen Corporation (FGEN). FPH controls 67.74% of FGEN. FGEN is one of the Philippines’ largest power generation companies. It owns a portfolio of solar, wind, hydro, geothermal and natural gas power generation assets.
Aside from its controlling stake in FGEN, FPH also controls Rockwell Land Corporation (ROCK) with its 84.83% stake and a 3.94% stake in MERALCO (MER). Unlisted ventures include an industrial park operator, a construction company, and power-electricity related industrial manufacturing.
FPH is controlled by Lopez Holdings Corporation (LPZ) which now owns around 50.63% of the company. Whoever controls FPH controls FGEN.
The controlling Lopezes have failed to spruce up the shareholder value of FPH. FPH, despite controlling one of the country’s leading power generation companies, is valued at only 30.3 Billion Pesos. FPH’s price-to-earning (PE) ratio is only at 2.84 as compared to Ayala controlled AC Energy Philippines Inc. (ACEN) 10.74 PE ratio, Aboitiz controlled AboitizPower (AP) 15.80 PE ratio, Alcantara controlled Alsons Consolidated Resources Inc. (ACR) 17.08 PE ratio. Price to book value of FPH is only at a meager 0.2906 as compared to ACEN’s 2.25 and AP’s 1.64.
Lower valuation attracts corporate raiders. This is how the Lopezes lost control of MERALCO (MER). In 2008, government financial institutions led by the Government Service Insurance System (GSIS) corralled 36.7% of MERALCO as against the Lopezes who were able to muster just around 35.6%. Then MERLACO were just trading at 60 to 80 a share level.
Eventually the Lopezes without enough firepower/resources to fend the corporate raiders were forced to eventually sell to the First Pacific group of Manny V. Pangilinan (MVP). The MVP group grew MERALCO share price to 277 a share level to a market capitalization of 312.2 Billion Pesos.
This time around, corporate raiders may now be circling FPH the holding company that controls the valuable FGEN. The government’s Social Security System (SSS) now owns a 5.48% of FPH. FPH with just a market capitalization of only 30.3 Billion Pesos it is within striking distance of a well funded corporate raider.
The only way to fend any interested parties on FPH is for the Lopezes to spruce up the value of FPH. The only cash flow rich unit of FPH is FGEN. Using cash from FGEN, FPH is aggressively initiating a share buyback program. In July 2020 FPH extended its share buyback program. Lopez Holding Corporation (LPZ) the Lopez entity controlling FPH is in no position to boost its holdings in FPH as itself is just valued at 10.3 Billion Pesos.
For the Lopezes to spruce up the shareholder value of FPH is to aggressively return cash from FGEN to its shareholders primarily through cash dividends and secondarily through share buyback. If the Lopezes can not do this, it is more likely that there will be a repeat of the 2008 battle for MERALCO. This time it is a battle for FPH. Whoever controls FPH controls the valuable FGEN.
Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.
You many now follow our views and commentaries in Google News in the web or in the Google News app. Just search accuretti.com (or click this link) in Google News. Then click the star to follow.