How expensive is BDO fundamentally based on their March 2020 financial report?

BDO Unibank Inc. (BDO), originally known as Acme Savings Bank, was acquired by the SM Group in 1976. BDO listed its shares on the Philippine Stock Exchange on May 21, 2002. The Company merged with Equitable PCI Bank in May 2007. 

BDO offers an array of products and services, i.e. retail banking; lending (corporate, commercial, consumer, and SME); treasury; trust; credit cards; corporate cash management; and remittances. Through its subsidiaries, the Company offers leasing and financing; investment banking; private banking; bancassurance; insurance brokerage; and stock brokerage services.

The Company's local subsidiaries include BDO Private Bank, Inc.; BDO Leasing and Finance, Inc.; BDO Capital & Investment Corporation; BDO Nomura Securities, Inc.; and BDO Insurance Brokers, Inc. The Company also has foreign subsidiaries in the US, Hong Kong, Italy, Japan, Canada, and Macau. The Company's associates include NLEX Corporation; SM Keppel Land, Inc.; Northpine Land Inc.; Taal Land, Inc.; and MMPC Auto-Financial Services Corporation.

As of December 31, 2018, BDO has 1,309 operating domestic branches (inclusive of one branch each in Hong Kong and Singapore), 4,325 automated teller machines and 484 cash deposit machines.

As of June 29, 2020, BDO was last traded at 94PHP per share. Its market price is  41.9% lower from its 52 week high. Is this fundamentally cheap and technically time to buy? 

Trailing P/E = 9.4 Indicating that for every 1php income last 2019, investors are willing to pay 9.4php.

Trailing PEG Ratio = 0.3, meaning, investors are willing or is paying 9.4php for every peso income last 2019 relative to growth growth rate of 35.4% which is the change of EPS from 2018 to 2019. A PEG ratio of less than 1 is considered undervalued.

Price to Book Value per share (P/B) = 1.1, meaning, the current market price per share is just 1.1 times higher that the real worth of the company as based on their March 2020 financial report. Usually, a P/B of less than 3 is considered undervalued.

Technically, the MACD momentum is in selling signal. RSI also is indicating a continuation of selling.  If I’m the investor, I would wait first for a sign of momentum reversal and not enter yet, but fundamentally, this is a good stock to accumulate. 

Disclaimer: Trade or invest at your own risk.

How does consumer price index affect the value of your money?

First, let’s understand what is CPI.

CONSUMER PRICE INDEX (CPI) = The Indicator of the change in the average prices of a fixed basket of goods and services commonly purchased by households relative to a base year. The base year used in the Philippines for CPI computation changes from time to time, but is always set to 100.

Prior to the year 2006, the previous base year was 2000, what does this mean? Suppose in the year 2000 there was a shopping basket commonly purchase by household, this basket contains the following goods in terms of percentage (may have been updated already).

Whatever the cost of the total goods, they will set it to 100 as the base cost. In the next month, they will again pick the same household goods and see the price change. This process will continue month after month.

If you notice, they again reset the basket in the early year 2006 to 100, and by the end of the year, the basket now costs 101.3 relative to the base year 2006. By the year 2016, the basket cost 146.3, an increase of 46.3% from the base cost.

In May 2020, the CPI recorded is 122.3. You might wonder why did the CPI decrease from 146.3 last Dec 2016 to 122.3 last May 2020? The reason is that they again reset the CPI last 2012 to 100, so now the baseline is not 2006 but the year 2012.

So what is the effect of this CPI change on your money?

Suppose you put PHP100,000 last 2012 in a time deposit with an interest rate of 1.1%, by 2019 expectedly, that PHP100,000 will grow to PHP107,959, an increase of almost 8%, but then, the CPI from 2012 to 2019 increase from 100 to 121.9 (21.9%). 

Should we compute the real rate of return which is the effective return on an investment after adjusting for inflation, we would get negative 11.4%, meaning, though your money is already PHP107,959, an increase of 8% from the initial value, if you used that money and spend it last 2019, the real value of it is only around PHP88,597, which means, your money actually dropped by 11.4%. 

That’s only if you invest last 2012, but what if your investment was since the last year 2000, you cannot use the CPI based on the 2019 report as it was adjusted based on the 2012 baseline. That CPI in 2019 when based on the year 2000 would even increase more perhaps to nearly 200, which means, the increase of price goods would be way higher. 

As you can see, you should find an interest rate that bets the CPI increase which is the inflation rate and note that it is being reset from time to time.

What are assets and liabilities?

Robert Kiyosaki Rich Dad Poor- Dad book, defines ASSETS as simply putting money in our pocket and LIABILITY is simply taking away money from our pocket, and according to him, to know whether an asset is really an asset, we have to see two financial statements. An item may be called an asset to someone but a liability to another. Just like an expense for someone but an income to another.

• Example: A bank will tell us that our house under a mortgage is an asset, while it really is, whose asset is it? Is it the bank asset or our asset? Reading two financial statement will let us see two sides of the story, the payment mortgage will be an asset to the bank since it put money to their pocket via mortgage payment, and is a liability to us since it takes away money from our pocket. Our savings in the bank will be a liability to them since it cost them money to safeguard it, but an asset to us because it puts money into our pocket via interest earned paid by the bank.

The poor, once they receive their paycheck usually spend it all without leaving any extra just before the next salary. They do deficit budgeting, even if they want to save, they just can't do it due to lack of self-control and, is usually not keen on educating themselves financially. 

The middle class usually prefer job security than financial freedom. They are fearful to take a risk, they buy what they thought to be an asset, it could actually be an asset, but the fact that it doesn't generate income, it becomes a liability. They work hard to pay off their supposed assets, instead of letting the assets pay for itself and really become an asset that generates income. 

The rich generate their income from their assets and pay their liabilities by the income generated by their assets. These are usually called portfolio income and passive income. Their money is working hard for them not the other way around.