Should We Follow Frank?

People say its common sense to follow the CEO especially when they’re the buyers. Does it follow then that we should follow CEO Frank Gaisano for buying MRSGI shares? Let’s check it out.

Mr. Frank S. Gaisano serves as the Chairman and Chief Executive Officer at AB Capital & Investment Corporation. He has been the Chief Executive Officer and Chairman at Metro Retail Stores Group, Inc. since 2012 and has been its Director since August 28, 2003. Mr. Gaisano serves as a Treasurer of Filipino Fund Inc. Mr. Gaisano serves as Managing Director of Vicsal Development Corporation. Mr. Gaisano serves as President of Direct Model Holdings Inc. He serves as Corporate Secretary of Vicsal Securities and Stock Brokerage Inc. He served as President of Filipino Fund Inc. since February 21, 2007. Mr. Gaisano also serves as Chairman of AB Capital & Investment Corporation. He serves as Chairman of Pacific Mall Corp. He has been a Director of Filipino Fund Inc. since September 2003. He serves as Director of the following corporations: Grand Holidays Inc. Maric Ventures Inc., Metro Legaspi Dev. Corp., Lucena City Value Shoppers Inc., Taft Property Venture Development Corporation, Vicsal Securities and Stock Brokerage Inc., Grand Enterprise Corporation, Midland Development Corporation and Tabok Properties Inc. He has been a Director of Metro Retail Stores Group, Inc. since 2003. He serves as Trustee of Vicsal Foundation Inc. He serves as a Director of Vicsal Development Corporation, Taft Punta Engaño Property Inc. and HTLand, Inc. He is a board-certified civil engineer. He served as Chairman of the Board of Filipino Fund Inc. He served as Acting Co Chairman of Filipino Fund Inc. since February 21, 2007. He is a holder of a Bachelor of Science degree in Civil Engineering which he received from the Cebu Institute of Technology in 1978 and M.B.A from the California State University.

All shareholder filings can be found at Philippine Stock Exchange.

  • ****Let’s start from the beginning. MRSGI IPO was 3.99 in Nov 24, 2015. During that time, the company marketed themselves at a 15X P/E ratio and raised P4 billion through the sale of 1 billion shares, including the over-allotment option of up to 92 million shares, to fund its store expansion program. A sample of their cover pages in Asian Dragon below described Frank as a cautious and forward thinking executive.

Highlighted in this profile is the fact that Frank Gaisano carried their company’s store growth from 14 to 49 stores in 5 years. They’re aiming 70 stores by 2020.

In its annual report for FY16, the company reported 50 stores totaling 225,000 sqm. In the earlier part of their IPO, the company posted P344M in the last nine months of 2015. Fast forward three years, in the last 9 months of the year, MRSGI reported an income of P454 million boasting 51 stores. Over a 3 year horizon, the company managed to actually grow 31.9% their net income.

This 2018 though, the market highlighted the drop in earnings of 17% yoy which is a result of a one-off item which is a fire in Ayala Cebu. They’ve shown slides that absent this fire, their 1H18 numbers would have been growing at 10.6%. Check slides below. More importantly, let’s discuss their roadmap of doubling their gross floor area count. Are they on track? Slides would show they’re going to grow towards 59 stores in the next 2 years with on track openings.

At 2.50, the company trades at a marketcap of 8.1 B pesos. 2018 saw a 17% dip in earnings in relation to the fire in Ayala Cebu which decreased sales and thereby income.7% decline in sales or 1.65B peso forgone revenue resulted into a difference of 100M in the bottom line. Seeing that Ayala Center Cebu is already being rebuilt with on track expansions, MRSGI can likely be foreseen to grow with the same 2018 income conservatively due to the finishing of existing construction. If we breakdown the sales in terms of current sqm, the company is selling P5,747 per sqm on each of their operating stores. If every single store opened by 2019–2020 results with the same kind of sales (Using 2018 — fire related numbers to reflect lower base) — we should expect sales to increase towards 31.8B in 9M20 or with a 2% margin, earning at least 636M or annualizing despite 4Q likely increase towards 847M resulting towards a 15X P/E marketcap of 12.7B marketcap or 50% higher than the present 8.1

All of these assume they’re on track with expansion. What we know so far is they are buying their own shares and believe their business just suffered a one year dip in sales due to a fire. Will you follow Frank? Seems at his entry prices of 2.20 below, it may be worth following.

I’ve been trading stocks for awhile but understandably I’m likely to trade or invest for the rest of my life. Here’s my way of thinking about things