Outlier: San Miguel Food and Beverage, Inc.

INVESTORS started to unload some of their shares in San Miguel Food and Beverage, Inc. (SMFB) after its parent company San Miguel Corp. slashed by almost half the size of its unit’s planned follow-on offering.

A total of P520.664 million worth of 6.093 million of the company’s shares exchanged hands on the trading floor during the week of Oct. 15-19, data from the Philippine Stock Exchange (PSE) showed.

SMFB shares slipped by 5.98% on a week-on-week basis to P84.15 apiece on Friday from the P89.50 close on Oct. 12. For the year, the stock price declined by 84.06%.

“Activity for FB is related to the follow-on offering,” AP Securities, Inc. research analyst Rachelle C. Cruz said, referring to the company’s ticker symbol (FB).

“Given market conditions, they cut the offer because it’s either the demand was low and they need to price it at a big discount or they might do another round of offering when market conditions are better and prices and people are able to absorb higher offer price,” she explained.

“Actually, [at the] early part of the week, there were some talks through the grapevine that [FB] will cut the offer. We saw the price fall, I think from around P90 plus during the week, it fell to P84,” she said.

For his part, Luis A. Limlingan, managing director at Regina Capital Development Corp., said: “FB trading activity [increased] as the share sale neared its target date of Oct. 25. The price has also converged at the projected range that the company indicated, which is between P85 and P95 a share.”

Last week, San Miguel Corp., FB’s parent company, said it will push through with its food and beverage unit’s follow-on offering but halved its size, citing market volatility.

From the initial 1.02 billion shares at P140 apiece announced earlier this month, FB cut it to 523 million shares — excluding an overallotment option of up to 15% of the offering — with a price range of P85 to P95 per share.

Proceeds from the share sale will be used by San Miguel to invest in its business.

AP Securities’ Ms. Cruz said a lot of investors were looking at FB for a possible index play.

“Given its size, there was an expectation that FB will be included in the Philippine Stock Exchange index (PSEi), but given that they cut the offer in half, the float will fall, based on our computation, up to 13%. And to be included in the index your float should be at least 15%. So they won’t qualify for now. So we saw some selling,” she explained.

As of Oct. 19, FB’s public float — the portion of outstanding stocks made available to the public investors for stock trading — is at 4.12% according to PSE data. This is below the regulatory requirement of 10% float level for a listed company as well as the 15% minimum required for a listed company to be included in the PSEi.

Piper Chaucer E. Tan, research associate at Philstocks, Inc., concurred: “We cannot argue that despite bearishness sentiment in our market, FB is still a good offer to investors which has good prospects in the future and also a possible index member stock somewhere in the future with its large market cap.”

Mr. Tan gave San Miguel’s food and beverage unit a net income forecast of P12 billion this year on the back of increased domestic spending despite near-decade high inflation.

“The Philippines is a consumption-driven economy, consumer retail stocks and businesses may benefit from this despite headwinds as of this moment and ‘-ber’ months will see an influx on spending,” Mr. Tan said.

Regina Capital’s Mr. Limlingan, for his part, projects SMFB will generate a consolidated net income of P33.4 billion.

In the first half of 2018, FB’s net income increased by a fifth to P15.4 billion, while its revenues went up by 15% to P137.4 billion.

Last May, it was reported that FB is expected to generate P33 billion in earnings this year after its food and beverages businesses are fully consolidated under its portfolio.

For next week, AP Securities’ Ms. Cruz expects FB to trade within the P85 to P95 range.

“Whenever [FB’s] price go down significantly from P85, some investors might buy already,” she said.

Regina Capital’s Mr. Limlingan pegged FB’s support and resistance at P82 and P90, respectively.

Philstocks’ Mr. Tan gave primary and secondary support prices of P80 and P80.10 as well as primary and secondary resistance prices of P90.50 and P104.