While I write this on the evening of November 1, by the time this gets out in print, Pilipinas Shell Petroleum Corp. (SHLPH) would have listed on Friday and the suspense would have been over if it was a good buy. Prior to the actual offer period, the mood was understandably cautious, given the weakness of the market, plus the mixed review of the actual SHLPH IPO.
My personal opinion is that I like SHLPH because of a number of reasons. First is that, while the market index has been on the decline, there are limited investment opportunities coupled with a lot of liquidity in the system. With a declared cash-dividend policy that would give a yield of upward of 5 percent, that certainly would be much better than any money market placement and at par, if not better, than the best cash-dividend yield you can get from listed stocks in the Philippine Stock Exchange.
Second is that, given the reduction in the IPO price to P67 per share, the total proceeds is now only P19.5 billion and not quite as large as it could have been at the original higher IPO range. In comparison, the IPO of Robinsons Retail Holdings Inc. was P28.11 billion in 2013; SM Investments Corp. was P26.25 billion in 2005; and Cemex Holdings Philippines Inc. was P25.1 billion in 2016. This makes the Shell offering large but not record breaking.
Third is that only 18.6 percent of the total outstanding shares is being sold in this IPO, with 69 percent going to foreign and institutional investors. What this means to me is that there isn’t too much volatility in the movement of the shares, which would typically be the case in very popular IPOs, where a number of investors merely want to flip it for a quick gain, and more so, dump it to cut loss when their expectations are not met. It is my opinion that most buyers would be buying it primarily for the cash-dividend yield, with capital gain as a longer-term objective. Of course, it would be in the best interest of the nonselling shareholders to see to it that the share price remains at a favorable rate since most regulatory agencies in other countries would require the recording of investment holdings to be marked to market.
SHLPH is in a growth industry and will remain to be so in the foreseeable future. As the per-capita GDP of the Philippines has entered the motorization stage, we can only expect to see more vehicles and, hence, more fuel usage in the country. To build a mass-transport system that would cause the decline in automotive transport would take several decades. I would also like to think that, with a little more imagination, the extensive gasoline-station network could be used as channels of distribution beyond merely convenience stores.
Being majority-controlled and-managed by the Shell Group has many advantages, such as being part of a global supply chain, international reporting standards and access to best practices and the best competitive managerial talent. Having an internationally known brand and logo does have its own benefits and advantages, as well, including the availability of up-to-date and technologically advanced products.
While it is possible that there could be a dip from the IPO price, I am not expecting it. What I hope to see is that, as people realize the value of the company, the share price will cross P80 a share within the year. As to how it will move from there depends on the company’s performance, how it delivers on its cash-dividend promise and how it handles its pending tax issues. As of now, I have put my money where my mouth is, and keeping my fingers crossed.
Comments may be sent to [email protected]