Proceeds of the sale will be credited to tendering shareholders of Metro Pacific Investments Corp. (MPI) on September 28, Friday. The transacted amount of more than P28.4 billion corresponds to more than one week of value turnover based on the PSE\u2019s average value turnover, and could potentially be a shot in the arm for the moribund market, which has been suffering from anemic volumes for months. <\/p>\n\n\n\n
Some MPI shareholders could potentially be repositioning their funds as early as yesterday, as their buying transactions could simply offset with the tender offer proceeds on Friday. But more funds could trickle back into the market in the coming days.<\/p>\n\n\n\n
The question now is where would the freed-up funds end up? We can assume that a small traumatized minority that took a significant loss from their MPI position could permanently exit the market. However, a big chunk would be from funds that have a mandate to remain invested. Given the attractive yields in the fixed income market right now, it can\u2019t be helped that a significant percentage could make its way into the bond market. <\/p>\n\n\n\n
Despite this, we believe a majority of the funds would re-enter the stock market and potentially go into MPI\u2019s remaining listed subsidiary, Manila Electric Co. (MER)<\/strong>, or its shareholder GT Capital Holdings, Inc. (GTCAP)<\/strong>. <\/p>\n\n\n\n The flow of funds into MER could have already started considering its steep run-up in recent weeks, which has taken its share price much closer to our target price of P392.31. GTCAP, on the other hand, remains one of the most undervalued listed holding companies and is currently trading at 4.9x P\/E, well below its five-year average P\/E of 11.3x.<\/p>\n\n\n\n Index tracking funds that had positions in MPI would likely reposition in its index replacement, Century Pacific Food, Inc. (CNPF)<\/strong>. However, CNPF\u2019s recent run-up has taken it within a stone\u2019s throw of the consensus target price of P30.56, so we currently have a HOLD rating on CNPF given its priced-in fundamentals. All other index names could also see some fund inflows, considering that the combined weight of AP and MPI is greater than the combined weight of BLOOM and CNPF, resulting in a small upweight for all index names. <\/p>\n\n\n\n Another option would be to reposition into MPI\u2019s affiliate PLDT, Inc. (TEL)<\/strong> or into Razon-led Manila Water Co. (MWC)<\/strong> to make up for the loss of exposure to Maynilad through MPI. DMCI Holdings, Inc. (DMC)<\/strong>, MPI\u2019s partner in Maynilad, is another viable substitute. DMC is another undervalued holdco, trading at 3.8x P\/E against its five-year average of 7.4x, and offers a very attractive dividend yield of 10.4%.<\/p>\n\n\n\n BUY: <\/p>\n\n\n\n Manila Electric Co. (MER) \u2013 Target Price: P392.31 HOLD: <\/p>\n\n\n\n Century Pacific Food, Inc. (CNPF) \u2013 Target Price: P30.56<\/p>\n\n\n\nFund flows likely to these stocks<\/h3>\n\n\n\n
Our recommendation and target prices<\/h3>\n\n\n\n
GT Capital Holdings, Inc. (GTCAP) \u2013 Target Price: P846.90
PLDT, Inc. (TEL) \u2013 Target Price: P1,713.38
Manila Water Co. (MWC) \u2013 Target Price: P26.10
DMCI Holdings, Inc. (DMC) \u2013 Target Price: P11.70<\/p>\n\n\n\n