• MVP’s advantage as an insider

    Emeterio Sd. Perez

    Emeterio Sd. Perez

    IF you are not an insider but are among the public, you may be in the market for the dividends. You may also speculate, hoping that the price of the stocks in which you have put your money would, sooner or later, rise.

    What if your expectation would not or did not happen?

    If you got the bad news, instead, that depressed the market, then it would be time to review your stocks’ financial performance based on their filings posted on the website of the Philippine Stock Exchange.

    Here is how two listed companies fared in the first six months. If you are in the market for the long term, then you might want to look at their retained earnings, the amount of which determines a company’s ability to declare dividend, either in cash or in stock.

    As of June 30, 2014, Vista Land and Landscapes Inc. had retained earnings of P23.331 billion. It reported net income of P2.832 billion in the first six months, up 10.409 percent from P2.565 billion in the same period last year. The company’s profits came from revenues which increased 14.576 percent to P12.050 billion from P10.517 billion.

    Vista Land has 8.539 billion outstanding common shares. If it distributes its retained earnings as dividend, then it would give P2.732 for each share held by stockholders.

    Philippine National Bank’s surplus amounted to P15.571 billion. Its net income dropped 39.498 percent to P3.209 billion from P5.304 billion. PNB, the banking unit of the group of companies that is controlled by businessman Lucio Tan, has 1.119 billion outstanding common shares.

    If, like Vista Land, PNB were to declare its surplus as dividend, then each outstanding common share would be entitled to P13.915.

    Due Diligencer is not suggesting that Vista Land and PNB spend their retained earnings on dividend. It is only trying to show that in selecting listed stocks, the public investors might also want to consider the amount of a public company’s retained earnings.

    Neither is Due Diligencer endorsing Vista Land or PNB. It cited the two listed stocks only for illustration purposes.

    Yes, the amount of retained earnings tells investors how it has been performing in the past years. But to certain insiders, it is not a major factor in deciding when to sell or unload their holdings.

    Why, for instance, didn’t Manuel V. Pangilinan, chairman of the board of Metro Pacific Investments Corp., wait for the distribution of P0.026 per share dividend in September? Instead, he sold his MPIC shares on July 8.

    The answer is found in other postings by MPIC insiders. In disposing of his MPIC holdings, Mr. Pangilinan, who is also known by his initials MVP, and then availing himself of his stock option, he would not only end up owning more MPIC shares than before; he would also buy them at a much lower price.

    As shown in PSE postings, an MPIC insider qualified to buy the company’s option shares would pay only P2.73 per share.

    Here is the scenario: If Mr. Pangilinan did not sell, he would receive P554,902 dividend. In retaining only one share, he would get only what would be due it: P0.026.

    At P5.25 per share, Mr. Pangilinan grossed from the sale of 21.342 MPIC shares P112.048 million, which could buy him 41.043 million ESOP shares. That’s 19.701 million more than the shares that he had unloaded.

    Here is the clincher. Mr. Pangilinan could still beat the record date of MPIC’s P0.026 per share dividend. As an insider, he could buy shares under the company’s stock option plan at discounted price.

    In the case of MPIC, the stock was trading at P5.16-P5.20. At the option price of P2.73, an insider would be ahead of the market by P2.47 (P5.20 minus P2.73), or 47.50 percent.

    Mr. Pangilinan was not the only MPIC insider who had sold his shares. On May 14, Victorico P. Vargas, an MPIC executive director, sold his entire holdings of one million shares at P5.23 each.

    Ramoncito S. Fernandez, a member of the board, sold 1.75 million shares in three trades: 950,000 at P4.77 each; 600,000 at P4.76 each; and 200,000 at P4.78 each. From the sale, he grossed P8,343,500.

    Then Fernandez bought 3.75 million shares at P2.73 each by availing himself of MPIC’s executive stock option plan, on April 22, the same day another insider, David John Nicol, chief finance officer, bought 6.25 million shares also at the same option price per share.

    Ergo, it pays to be a company executive. As an insider, he or she would not only be paid well but would be enjoying additional perks such bonus and stock options.



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    1 Comment

    1. These are the reasons behind the direct correlation between corporate performance and executive compensation. Perhaps public-listed companies should consider companywide stock option plan rather than executive stock option plan only.