URC weighed down by margin pressures as competition tightens

MARGIN pressures and limited upside in the short-term sent investors in food and drinks conglomerate Universal Robina Corp. (URC) into selling mode, making it one of the most actively traded stocks last week.

During the week of Sept. 10-14, a total of P1.498 billion worth of 10.263 million URC shares exchanged hands, data from the Philippine Stock Exchange showed.

On a week-on-week basis, its share price went down by 2.48% to P141.30 apiece last Friday from the P144.90 closing price on Sept. 7. Year to date, the stock price slashed 8.25%.

“For consumer companies [like URC], most of the selling is really because of the margin pressures. URC cannot compete with other brands if they will pass on the import cost to the consumers, so they have to absorb some of the additional cost on their part,” said Rachelle C. Cruz, research analyst at AP Securities, Inc.

“The issue concerning the company is the competition. The peso is depreciating against the dollar. So what does it mean for URC? It means higher raw material cost,” she said.

Ms. Cruz added: “Currently, URC is trading at forward PER (priceto-earnings ratio) of 30.5 times and their average PER is 30.4 times for the past five years. That might explain the selling because upside is already limited.”

“What the investors are waiting for to come back... is mostly a recovery in terms of margins because URC is suffering from margin pressures due to intense competition especially on the coffee side.”

The URC’s coffee segment, which includes its Great Taste and Blend 45 coffee brands, was not the only one reeling from the intense competition in the instant coffee market segment. For one, Nestlé Philippines, Inc. was also complaining that it is competing at a disadvantage with Indonesia’s Kopiko, which imports its three-in-one coffee mix. Nestlé and URC source their sugar requirements locally and pay twice the world market prices.

In its latest unaudited financial statements, URC’s sales showed a 5.88% increase to P64.372 billion in the first half of 2018 from P60.795 billion in 2017’s comparative six months. Its bottom line during the period, however, was down by 22.74% to P4.934 billion from P6.386 billion previously due to lower operating income and foreign exchange gains.

The company has three core businesses — commodity food products, agro-industrial products, and branded consumer foods (BCF). The revenue posted by the BCF’s domestic businesses fell 1.85%, weighed down by the “lower volume and unfavorable mix in the coffee category.”

Ms. Cruz noted URC’s acquisition of the milling and refining assets owned by Roxas Holdings, Inc. and its subsidiary Central Azucarera Don Pedro, Inc. in Nasugbu, Batangas as one of the strategies being undertaken by the company in order to compete in terms of prices.

The transaction is currently under review of the Philippine Competition Commission.

Still, URC’s stock price rallied following the news of the acquisition as noted by Jeng T. Calma, trader at A&A Securities, Inc. wherein prior to the move, the stock’s price has “consolidated for too long” from its June low of P111.30. As the news broke, the URC stock’s price rallied to as high as P153.4 apiece on Sept. 10.

Even with last week’s net selling, Ms. Calma considered URC’s current stock price of P141.3 to be “attractive” compared to last week’s intraday high of P153.4.

For this week, she expects URC to trade within the support and resistance levels of P140 and P150, respectively.