MPI - Is it a safe stock?

Hi guys, to anyone who read this, this is my first ever stock analysis. Excuse my grammar, and I do hope you understand the whole thing. I will be focusing on 1 stock per month since I have little to no free time. All my opinions are original, but if it is the same to anything you wrote or read, it is purely coincidental and I apologize for that. 

So my first stock would be Metro Pacific Investment Corporation (PSE:MPI)

Why MPI? For me MPI is on my Top list of stocks,and I believe that this company can last a lifetime, but I still need to make sure that this is the case. So in order to do that, I need to research about the company and know if MPI is really a safe bet. Because sharing is caring, I will share to you guys what I found out.

Listed only in 2006, MPI has still a lot of space to grow. If you follow the news, we all know that PRRD is focusing on infrastructures right? With his 10 point agenda and all ( 7 Trillion planned spending on Infra). An excerpt on their FS:

          “MPIC is a leading infrastructure holding company in the Philippines. MPIC’s intention is to

maintain and continue to develop a diverse set of infrastructure assets through its investments in

water utilities, toll roads, electricity distribution, healthcare services and light rail. MPIC is

therefore committed to investing through acquisitions and strategic partnerships in prime

infrastructure assets with the potential to provide synergies with its existing operations”.

*More details about the company in their website.

Because of the government initiative in increasing public spending and focusing in infrastructure. The demand for the sector is high, and MPI already had the upper hand, bagging the first PPP of the PRRD administration. But first we need to know more about the company we are investing into.

So how do we know if MPI is a safe stock to invest. First let’s look at MPI’s fundamentals:

MPI’s Total Assets growth is at its fastest pace, with Total Asset in 1H2016 already exceeding that of 2015. We need a company that won't be closing down soon, and a company with a steady growth, a double digit growth at that.

Capital growth slowed down in 2014, rebounded back swiftly the following year. Volume is still at an increasing pace.



Liability significantly jumped last year and this year, at 45% and 52% respectively.


A big portion of increase in liability is due to increase in Long-term Debt, which is quite alarming, an increase of 45% or P47 billion Increase in Debt for just over a year is something we need to know more. Reading their 2015 AFS (Note 19) it states:

"On April 14, 2015, MPIC entered into separate agreements to secure loan facilities in the
aggregate amount of P25.0 billion (P25.0 Billion Facility), proceeds of which were used to
partially finance the acquisition of 10% of the total issued and outstanding common shares of
Meralco held by Beacon Electric"

P28.0 billion loan intended to finance investments in wastewater collection and treatment, and septage management in Metro Manila.



Based on the datas gathered, MPI had been expanding its asset and operation thru debt financing. The company is on an aggresive stance, although quite alarming, but not totally bad. Mainly because their expansion is aligned with the demand on Infrastructure industry due to promised growth on public spending by the current admin. But we wouldn't want a company that rely too much on debt, right? We can also see that this year, long-term debt already slowed down to 2% for the first half, which could also mean that MPI is managing it's credit exposure.


That's MPI basic Fundamentals, but it is still not enough to know if the company is a safe investment in the long run. In order to that we need to compute for "Key Financial Ratios":

So what are these "Key Financial Ratios", what do these mean? If you were awake the time your boring math teacher taught the class about ratios, you will probably had the idea at least. But since you didn't believe that math calculation would be useful when you grow up, you hadn't had the slightest urge to know. Anyway, i'm not here to talk about that. Key Financial Ratios in layman terms, are basic computation that helps us in making decisions before investing in a company.

Here I will be using ratios that compute "Earning Power", basically this would tell us if MPI is healthy and would not be shutting down any time soon. This would also tell us how risky it is to invest in the company.




1. Equity Ratio - this ratio simply measures how much of the total assets is financed by stockholders. We can see on the data above that from 2012, equity ratio is starting to decline, meaning the company is relying more in debt financing in expanding its operations. We need to watch out for this ratio because the lesser the percentage of the equity over the asset, the greater the risk in investing in the company.

2. Debt Ratio - is the same as the first ratio as this measures how much of the total asset is financed by Liabilities. Although we will focus more on the next ratio which is the Long-term Debt ratio, whuich measures how much of the total asset is financed by credits from the bank. The data shows us how the debt increased from 2012-2015 but managed to slow down a bit this year. We need this ratio to be manageable in order for the company not to be burden by fixed charges coming from its debt, which in turn affects its Net Income.

3. Debt to Equity Ratio - this last ratio tells us how dependent is the company's operation to external financing. We can see that the Debt-to-Equity Ratio is increasing, meaning MPI is getting a little aggresive in financing its operations.

Summary

MPI is still expanding and growing at fast rate. Although we observed that the company reduced its equity exposure and entered into more debt last year (2015) they still managed the risk and slowed down this year. Long-term debts are still manageable and we can still safely assume that MPI won't be closing anytime soon. MPI's expansion is still in line with the current administration focus in infrastructure growth, and the demand on the industry. A strong demand and a stable company = good investment.

I still have a lot to add on this company, and will talk a lot more. Next would be its profitability. Feel free to comment and suggest.

Sources: 2012-2015 Published Audited Financial Statements
             1H2015 & 1H2016 Quarterly reports
             http://edge.pse.com.ph/
             https://www.google.com.ph (For ratio definitions)