AboitizPower should be alarmed by their increasing debt ratio and reconsider

Aboitizpower should be alarmed by their increasing

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AboitizPower should be alarmed by their increasing debt ratio, and reconsider their financingdecisions. Their debt ratio means that 68.54% of the company is financed by debts. It ishighly leveraged and investors consider this a bad sign knowing that this signifies that thecompany is more exposed to risk. Consequently, the decline of TIE was due to the increase inthe interest expense by 16.13%. This can be attributed to the company’s additional liabilitiesand the large projects it has invested in.Ratios20162015% ChangeDebt Ratio68.54%58.10%17.97%Times Interest Earned (TIE)3.42x3.72x– 8.23%OVERALL PROFITABILITY RATIOSProfitability of AboitizPower had a minimal growth in 2016 which is considered reasonableand stable. The increase in book value per share and EPS may entice potential investorsbecause of the higher value of the company and possible returns. The decline of ROA by22.45% was driven by the substantial increase of the total assets by 46.31% compared to themuch lower increase of the net income by 13.46%. This is possibly due to the largeinvestments that the company made in 2016.Ratios20162015% ChangeNet Profit Margin24.12%22.25%8.39%Return on Equity (ROE)19.26%18.65%3.28%Return on Assets (ROA)6.06%7.82%– 22.45%Book Value per SharePHP 15.17PHP 13.819.86%Earnings per Share (EPS)PHP 2.92PHP 2.5813.46%COMPANY ANALYSISFINANCIALS
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MARKET RATIOSLastly, the market values of AboitizPower slightly decreased as well. Although EPS and bookvalue per share went up, the increase of market price by 3.28% was relatively lower than thatof the EPS and book value per share by 13.46% and 9.86% respectively. Even though thedecline in pesos (PHP) was only a little over Php 1 for P/E and Php 0.18 for M/B, thepercentage change is still something to be considered.Ratios20162015% ChangePrice/Earnings (P/E)Php 15.09Php 16.58– 8.98%Market/Book Ratio (M/B)Php 2.91Php 3.09– 5.99%Market price per share was obtained by computing for the average of the highest and the lowestprice for 2016.COMPANY ANALYSISFINANCIALS
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COMPANY ANALYSISSTOCK VALUATIONThe group made use of the Multiple-Year Holding Period Model, the Constant growth model,and the Variable Growth Model to evaluate AboitizPower’ stock. Variable Growth model wasused because the company, for the past 3 years, has experienced an increase in their growthrate. The group expects this trend to continue for the next 3 years and would have a constantgrowth rate of 6% after that. On the other hand, the group also considered that the dividendpayout of the company would continue to be stable at PHP 1.66 for the next two years. Withthat, the Multiple-Year Holding Period was also used with the assumption that the growthrate from 2016 would be applied to the dividends for years 3 to 5. Constant growth rate hasbeen used due to the fact that Aboitiz Power is a well established and mature company.
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