ADEQUACY OF VALUE

INVESTING ON LISTED
FOOD AND BEVERAGE
COMPANIES IN THE
PHILIPPINES
 RATIONALE
• There are a lot of investing strategies, one of it is value investing.
• Successful investors like Warren Buffet and Peter Lynch, focused on
this strategy in identifying investment opportunities.
• Food & beverage companies has a unique role in expanding
economic opportunity because it is universal to human life which also
operates at multiple levels of society where billions of people grow,
transform, and sell food, particularly in developing countries where
agriculture dominates all other economic sector.
• Stock prices of F&B companies were relatively underpriced
making it seem incompetent in the market.
• Today, F&B may be intrigued by new variations -- organic, all
natural, sealed pouches instead of jars, no processed ingredients,
signaling that they were performing well over time.
• According to Societe General Private Banking, value investing is a
long-term strategy as opposed to trading. It requires diligence and
patience as it can sometimes take years to get the pay-off from the
strategy.
• However, the benefit is that long-term capital gains are taxed at a
lower rate than the short-term capital gains.
CONCEPTUAL FRAMEWORK
 METHODOLOGY
• The Food and Beverage (F&B) industry, which accounted for 10% of
GDP and for 51.2% of the nominal gross value added (GVA) of the
Philippine manufacturing industry in 2017(from the Philippine
Statistics Authority), has been chosen to test if the value investing will
be an adequate investment strategy.
• The data for the stock prices and any other relevant information will
be gathered from the websites (such as Reuters, PSE Edge Portal, and
Investing.com), where the companies disclose their information.
• In determining the intrinsic value, the Gordon Growth Model was
used.

𝑫𝟏
𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒔𝒕𝒐𝒄𝒌 =
𝒌−𝒈

Where:
D1 = next year's expected annual dividend per share
k = the investor's discount rate or required rate of return
g = the expected dividend growth rate (note that this is assumed to be
constant)
• CAPM is used to describes the relationship between systematic risk
and expected return for assets, particularly stocks.

Where:
ERi = Expected return of investment
Rf = Risk-free rate
βi = Beta of the investment
ERm = Expected return of market
(ERm - Rf) = Market risk premium
• The risk-free rate is the Central Bank rate which is 4.50%, and the
expected return of the market is 7.85% which is the average rate in the
Philippines from year 1985 to 2019. The beta, on the other hand, is a
company-specific data.

• After obtaining the intrinsic value, it will then be compared with the
stock price, which is the average stock of the company for the years
2017 and 2018. Moreover, only those companies who have declared
dividends for the last two years where tested for uniformity.
RESULTS
 F&B Companies’ Average Stock
Prices and Beta
Average Stock Price Beta
Companies
2017 2018
Century Pacific Food, Inc. 16.76 15.53 0.61
Emperador Inc. 7.02 7.32 0.53
Jollibee Foods Corporation 223.01 280.45 0.86
Liberty Flour Mills, Inc. 61.99 51.71 -0.31
Macay Holdings, Inc. 24.81 15.19 0.63
Max's Group, Inc. 21.38 13.16 1.94
Pepsi-Cola Products Philippines, Inc. 3.11 2.21 0.68
RFM Corporation 4.71 4.77 0.72
Roxas Holdings, Inc. 3.92 3.25 0.25
San Miguel Food and Beverage, Inc. 33.38 74.27 0.49
Universal Robina Corporation 155.50 137.27 0.83
 EXPECTED DIVIDEND PER SHARE

Dividends Expected Dividend

Companies Growth Rate
2017 2018 *2018 **2019
Century Pacific Food, Inc. 0.18 0.18 5.54% 0.19 0.19
Emperador Inc. 0.36 0.34 2.13% 0.36 0.34
Jollibee Foods Corporation 2.18 3.32 5.52% 2.30 3.50
Liberty Flour Mills, Inc. 2.67 0.50 6.07% 2.83 0.53
Macay Holdings, Inc. 0.12 0.12 4.10% 0.12 0.12
Max's Group, Inc. 0.13 0.14 5.52% 0.14 0.15
Pepsi-Cola Products Philippines, Inc. 0.07 0.04 4.10% 0.07 0.05
RFM Corporation 0.06 0.09 12.42% 0.07 0.10
Roxas Holdings, Inc. 0.35 0.22 1.38% 0.36 0.22
San Miguel Food and Beverage, Inc. 4.50 3.00 12.42% 5.06 3.37
*2018=Robina
Universal Dividends from 2017*(1+Growth
Corporation 3.15Rate) **2019=
3.15 Dividends4.78%
from 2018*(1+Growth
3.30Rate) 3.30
ANALYSIS
 CONCLUSION
• Out of eleven (11) only three (3) companies are adequate for value investing.
• The overvaluation of the stocks may be due to due to its brand, superior
management or other factors that increase the value of one company's earnings
over another.
• Having a majority of the companies being overvalued is unfavorable for those
who seek long-term investing since it is believed that if a company is truly
undervalued, value investing dictates that the returns will come in time.
• Food and beverage companies in the Philippines is not a suitable investing
strategy for value investors.