March 9, 2014- $MER – Neglected Issue within 6,500 PSEI (Opportunities You Can Take Advantage)

March 6, 2014 was an important date.  Not only did we manage to revisit 6,500 , it also marked the 5th year birthday of our bull market which coincided with the SPX intraday bottom of 666 on 3-6-9 (March 6, 2009).  Even more dazzling about March 6 is that it was also the day that FTSE also known as the index of the European nations declared the following companies ($LTG,$GTCAP,$EMP,$JGS,$PCOR) to be included in their mid cap index as well as $MCP,$RCB and $COSCO to be included in the FTSE small cap index.

Why are these inclusions good news?

1.) Passive Index trackers will be “forced” to buy the companies included and thus generate artificial short term demand for these companies.  So if you’re trying to sell these companies, then you can sell at higher prices and feed the quacking ducks!

2.) Traders who would like to “front” run the “expected” autobots from these FTSE index trackers will try to support the price and help lift it in the short term *at least before the March 21 ex dates.

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So yes, I agree.  Look at our PSEI index.  We have come a long way.  A lot of people who accumulated $PSEI from 5500-6000 are up at least 10% in their stocks assuming they hold a stock that ONLY tracked the index.  Most companies have travelled 20-40% , with some even 50% during this time.  I agree, we’re probably on the overbought stage and it’s time to trim some profits but it’s a hard thing to predict when we will correct, whether we will drop back to 5500 or 6000.  For now, we look for more opportunities and it’s wonderful!  I found plenty! I’d share some of them.  (Just some, not all. I leave the rest for your exploratory hunting so that you get to enjoy the feeling of looking for companies with good risk reward ratios.)

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I shared in Faceless Trader Open group the sleeping opportunity in $MER. Image

I don’t have to be the brightest analyst (technicals or fundamentals) to see that

First the Technicals

1.) There’s an accumulation pattern between 250-260.  This has been retested several times for the past 4 months.

2.) There’s a confirmed reversal from the downtrend as it broke from 270 (why is this significant?  It is significant considering that the people who bought large volumes in the recent $MER placement from Mr Ang’s hands to Mr. Gokongwei and company) took place in two tranches, 235 and 270.

Please read the following articles amongst the multitudes that commented on this Win-Win Deal!

http://www.themalaysianinsider.com/business/article/san-miguel-to-sell-small-stake-in-manila-electric-for-us300-million

http://www.philstar.com/business/2013/10/01/1239945/smc-exits-meralco-sells-stake-gokongweis

http://www.philstar.com/business/2013/10/07/1242258/win-win-deal

3.) There’s a flag formation between 289 to 277.  This is called a continuation pattern where ultimate resistance resides from the breakout stage of 275 to the support box or a target between 300 to 320.

4.) I learned not to be “overly” specific with resistances.  I don’t have to be perfect.  The point is

@ Spot of 280

My risk is 270 (but this is mitigated by the dividend yield of 10 pesos annually) while my reward is hovering somewhere between 300 and 320 or if it breaks out further, back to 380. (I’m not trying to gun for 380 but I hold winners nevertheless for that “jackpot” in the end with a trail stop.

Still though, from a short term standpoint, risk seems less than reward so even if $MER sleeps in this “continuation” flag despite positive catalysts of a dividend and an inclusion in the PSEI, it’s still worth having for an entire year even if it’s a sleeping toad.

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$MER has numerous institutional coverage both locally and from foreign counterparts.  I don’t remember everyone’s target prices but I surmise its between 300-400.

The good thing *if you’re a trader or investor* why $MER is trading below P300 is there are regulatory risks on whether $MER can pass through the electricity surcharges to customers as a pass through due to the impending case of WESM prices spiking during November 2013. This is why from trading above Php300, $MER traded for months at prices of 250-260 until the news of a PSEI inclusion effective this March 17, 2014.

Following the reduction of 49 centavos in October, Meralco noted that there will be a 98-centavo per kWh generation charge adjustment this month as several of its large power plants were on maintenance shutdown.

“Tight supply conditions due to these plant outages necessitated Meralco to source more electricity from the Wholesale Electricity Spot Market [WESM], purchases from which posted an effective increase of P8.10 per kWh,” the company stated.

Meralco said that rate from the Power Supply Agreements (PSAs) also increased by 27 centavos per kWh, adding that these were partly mitigated by a 10-centavo per kWh reduction in the average cost of the Independent Power Producers (IPPs) because of the improvement in the IPPs’ plant dispatch.

Source: http://manilatimes.net/meralco-hikes-rates-for-november/51521/

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Also, noteworthy about $MER is they are actively pursuing some power generation projects especially those situated in Mindanao. In a news clipping dated June 2013,

In a press conference Friday, Pangilinan said they are in talks with a Mindanao-based power generation company for a possible joint venture in operating a coal-fired power plant.

“We’re aware of the brownouts and we’d like to be part of the solution with regards to the power situation in Mindanao,” Pangilinan told the regional press shortly after the annual stockholders’ meeting of the Philippine Long Distance Telephone Co., which he chairs.  There are at least two coal plant projects in Mindanao currently under construction, one in Davao City by the Aboitiz Power Corp. and the other in Maasim, Sarangani by the Sarangani Energy Corp. of the Alcantara Group

“We have received many offers both [from] local and foreign groups who are interested in taking an equity position in our power projects and in ACR (Alsons Consolidated Resources, Inc.) And yes, the MVP group is one of them,” Tomas I. Alcantara, the group’s chair, said in a text message forwarded by one of his senior executives.

Read more here:  http://www.sunstar.com.ph/davao/business/2013/06/17/meralco-eyes-power-generation-investment-mindanao-287768

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Dividends and Insider Buying

MER Dividends are practically consistent every year.  It pays like clockwork during March and August.  There’s a March 17 analyst briefing and it is likely to announce a dividend similar to last year of P6.00 since earnings are forecasted to be above P17 Bil or higher.

Sometimes you gotta read some opinions and this is one article I would like you to read. Php42 Bil of Retained Earnings

A few, however, would take advantage of Meralco’s fall, which to them would only be temporary.

For instance, on December 11, when Meralco climbed to session’s high of P260 and fell to a low of P255.40, Ray Espinosa, a member of the board and general counsel, bought 10,000 shares at P256.80 each. The acquisition increased the number of Meralco shares he owns to 21,000. The following day, the stock closed at P253 but slightly recovered on Monday when it ended the session at P256.40, still putting him slightly behind. If he has not sold yet, then being an insider, he is probably more optimistic than the rest of the public who are outsiders because he has faith in Meralco.

http://manilatimes.net/meralcos-p42-63-b-retained-earnings-available-for-dividends/61508/

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There are more.  Its not just $MER.  You just have to open your eyes and read more companies trading in the Philippines.

– Faceless Trader

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