faux pas

AMDG

While posting comments on the online PSE forum site www.financemanila.net, a terribly embarrassing mistake of mine was brought to my attention. In my previous blog entry here, I wrote like a gushing schoolgirl with a big crush, extolling NRCP and its “one third book value and four times earnings when trading at P2.85 per share”. Little did I know that my failure to double check-my figures would lead me to some awkward posts in financemanila and maybe even the wrong decision to buy NRCP.

You see, to determine the number of outstanding shares of a company, I usually just look at the second page of its SEC Form 17-Q that I download from the PSE website (www.pse.org.ph), where the number of outstanding shares is written. Somehow, with the Form 17-Q of NRCP, it says on the second page it has 741,902,600 common shares but indicates that it has 2,181,954,600 common shares in its balance sheet. Unfortunately, I overlooked this, even when the company’s 9-month period EPS was just P0.22 in the f/s and P0.56 in my Excel spreadsheet (which automatically computes EPS, among others).

So there I was in financemanila, aggressively placing my bet on NRCP as a strong buy at 2.85. Fortunately, the good posters of financemanila were kind enough to point out my mistake: with 2,181,954,600 shares, NRCP is actually just a couple of centavos below book value at P2.85 per share, and a little over ten times this year’s earnings. While it was very embarrassing to make such an elementary error, I also could not help but feel grateful to the people who got out of their way to correct me (many thanks to you, guys).

Going back to NRCP, I’m sure there’s a reason why the second page of their SEC Form 17-Q puts the number of shares at more than one billion less than that in their balance sheet (stock split, stock dividend, typographical error, error split, typographical dividend – I don’t know). I double-checked the Form 17-Q’s of the companies I’ve bought into and the companies in my watchlist (seventeen of them so far), and I have yet to find a difference with the number of shares listed in the second page and in the balance sheet (the good news here is, while I made some wrong computations with NRCP, all my other computations for the other companies seem correct). Well, you live, you learn…sometimes the hard, embarrassing way.

As for NRCP though, I had bought this stock primarily because I thought it was really, really cheap – like a three-for-one-peso banana-cue…on midnight sale…during banana season. With this recent development though, that’s not quite the case any longer. Of course, it still has a monopoly on the reinsurance business here in the Philippines. Moreover, even if it’s not trading at a very attractive “just a third of book value”, as I earlier thought, it is still doing so at just around its exact book value, which isn’t that bad. But then again, even with its monopoly on the reinsurance business, its growth prospects do not seem quite as bright. It has a generous dividend yield (around 7% – at least for now), but it’s this exact same dividend yield that could possibly inhibit growth in the long term.

All in all, NRCP still has its monopoly on the country’s reinsurance going for it. Aside from that, everything else doesn’t seem to look as attractive as it used to. Will do some more research here, but I’ll probably have to let it go at low- to mid- P3’s per share level, if it does get there. Well, not unless it does become a $3B company come 2011, as the company’s management claims it will (too much midnight sale, banana season banana-cue for them, perhaps?). At current exchange rates, that would put its book value at P55 per share. And this time, that’s based on the correct number of shares:-)

Peace out!