PGOLD builds-up inventory at end of 3Q20 burning 1 Billion Pesos in its operations in the process, solid gold PGOLD still valued by the market cheaper than MerryMart and 7-Eleven

Puregold Price Club, Inc. ‘s (PGOLD) fundamentals remain strong.  At the end of 3Q20 PGOLD’s cash ballooned to 26.7 Billion Pesos as it availed of a 12 Billion Pesos of long-term loans it didn’t need.  PGOLD ended with cash more than 2x its current liabilities of 11.4 Billion Pesos.

In the third quarter of 2020, PGOLD however burned cash in its operations of around 1 Billion Pesos. Culprit is inventory build-up.  It could be that it is building-up inventory for the upcoming holiday season. PGOLD could also be bulking up inventory as a precaution to disruptions in the supply chain especially that western countries are rolling back lockdowns.  Just-in-time inventory systems are not working in this pandemic.

PGOLD continues to prove that it is an earnings machine. For the period ended September 30, 2020, PGOLD posted a consolidated net sales of P121,138 million for an increase of P11,156 million or a growth of 10.1% compared to P109,981 million in the same period of 2019. The full operation of new organic stores put up in 2019 boost the increase in consolidated net sales. For 9M20, PGOLD earned a consolidated net income of P5,050 million at 4.2% net margin and an increase of 10.9% from P4,553 million at 4.1% net margin in the same period of 2019. This was principally driven by the continuous organic expansion of the Group’s grocery retail outlets on the back of a sustained strong consumer demand.

Despite PGOLD having better earnings capability that MerryMart (MM) and 7-Eleven Philippines (SEVN) is still valued by the market way cheaper than MM and SEVN.  PGOLD has a P/E ratio of 16.58 way below SEVN’s 149.20 and MM’s 348.  In terms of Price to Book Value ratio, PGOLD is still laggard compared to MM and SEVN.  MM has a P/BV ratio of 13.95 while SEVN has 11.18.  PGOLD has only 1.86. PGOLD’s share price has still an excessively big space to grow.

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Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent viewpoint.  Accuretti Systems Inc. in day to day trading may have owned, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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