MANILA – The Board of Directors of Land Bank of the Philippines (Landbank) on Tuesday “approved in principle” the proposal for the government financial institution (GFI) to buy at least a 66.67-percent stake in Philippine Dealing System Holding Corp. (PDS).
“LBP Board just approved in principle to acquire at least 66.67 percent common shares of Philippine Dealing System Corporation subject to compliance with all legal and regulatory requirements,” Landbank President and CEO Alex Buenaventura said.
Buenaventura earlier said his recommendation to the Board on the shares purchase was aimed at helping increase the bank’s profit.
“The objectives are to increase Landbank profits and to accelerate development of capital markets in the country,” he said.
In his January 16, 2018 letter to the Landbank Board of Directors, Buenaventura said his proposal was based on the fact that the bank currently had a 1.56 percent stake in PDS “through the Bankers Association of the Philippines (BAP).
He said BAP signed a Share Purchase Agreement on June 15, 2017 that allowed the Philippine Stock Exchange (PSE) to acquire 1,488,902 common shares equivalent to 23.8 percent of PDS’s total outstanding stock for P476,448,640 or at P320 per share.
“This implies a valuation of P2 billion for PDS and a PE (price earnings) ratio of 8.10x based on 2016 PDS earnings,” he said.
PE ratio is the proportion of a company’s share price vis-à-vis its per-share earnings.
This valuation, he said, is however, lower than it should be and noted that “research on the financials of comparable market infrastructure enterprises in the region and globally show that such businesses trade at an average LTM (last twelve months) PE ratio of 34.1x and 35.8x, respectively.”
“This indicates that at a price of P320 per share, PDS is undervalued and purchasing PDS shares could be a profitable investment for LBP,” he said.
The Landbank chief said the bank “will benefit from stable recurring cash flow from the various fees PDS charges to market players as the country’s central securities depository and fixed-income exchange.’
He said more than 70 percent of PDS’ income comes from “provision of services as a depository, registry, and financial intermediary and over 20 percent of revenues come from trading services, the latter an area of opportunity as the local bond market matures.”
He explained that PDS “has an asset-light business model and consistently registers healthy EBITDA (earnings before interest, taxes, depreciation and amortization) margins above 45 percent and wide net profit margins above 25 percent.”
