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Wednesday, March 6, 2013

Investment Thesis: A Call on COL

I've been looking at COL for some time now and as you might already know, COL Financial Group Inc, the leading online stockbroker in the Philippines is actually listed in the PSE. I personally trade with them and I like their trading platform. Having this said, I really had the interest on investing on this company not only because I like it's service and products but also because of the type of business it is in. Since COL is a stock broker, they make money from brokerage commissions. Every time you and I buy or sell stocks they make money.

I have been closely monitoring how much money they make on a daily basis from their online brokerage operations since Nov last year to present, and when I saw this news below it really came to me that COL is really on a very sweet spot in it's brokerage business and it's position in the Equity capital markets in the Philippines.

Security NameCOL Financial Group, Inc.
HeadlineDCL #1976: Press release: "COL's operating performance rebounds..." - 1
Operating profits of leading online stockbroker COL Financial Group Inc. (COL) rebounded during the fourth quarter of 2012. During the last three months of 2012, COL's operating profits jumped by 16.1% to Php50.1 Mil. This brought operating income for the whole of 2012 to Php339.2 Mil. Although still lower by 15.6% compared to the 2011 total of Php401.7 Mil, the drop was much slower than the 19.4% decline registered during the first nine months of the year. Consolidated net income for the full year fell 8.6% to Php305.9 Mil. Profits rebounded as COL benefited from the recovery of trading activity by local investors in the PSE.

The key takeaway of the above news is that COL's operating profit rebounded in the 4th quarter last year. Noting this, when I checked my gathered data since Nov 5, 2012 to Dec 31, 2012 (2/3rds of the 4th quarter) the average commission they get is about PHP 1.6MM per day (I computed the daily commission by multiplying the daily value turnover under COL x 0.25%). As per the article, this was achieved mainly on the increase in trading activity in the 4th quarter accompanied by COL's increase in number of clients amounting to about 46,536 as of end 2012 from only 27,704 last 2011.

Now the most interesting part here is when 2013 came in, from Jan 1, 2013 to Mar 6, 2013, COL's average commission is now standing at P2.2MM per day a roughly 40% increase!

Taking into account the seasonality of the market, trading activity is seen to pick up or to be generally higher than the year average during the fourth quarter. If 1.6MM was the above the year average daily commission on the fourth quarter of 2011. How much do you think the daily commission in the fourth quarter of 2013 will be knowing that even at the 1st Q of 2013 they're already getting PHP 2.2MM a day? We'll your guess is as good as mine haha! But what the numbers are telling us is there is a very good reason to believe that it will be higher simply by just judging from the momentum of the numbers we're seeing.

I'm a believer that what drives stock prices is earnings and the certainty of that earnings. With early signs of potentially great earnings backed with a good certainty of that said earnings due to the increasing number of clients. I think COL is really a good business to own for the long term.

COL sweeteners

Company executives a.k.a Insiders are buying at current levels
*data coming from Bloomberg

Red marks means company insiders sold COL
Green marks means company insiders bought COL

Notable insider transactions are the below from 
Edward Lee, Chairman of COL Financial Group Inc.

and Han Paulwell, Director of COL Financial Group Inc.

And last but not the least, Management owns 55% of the company

Management has a huge chunk of the company so I guess that's a pretty good indicator that they will do their best for COL as they would also hurt their pockets if they wont. Haha! Cheers! Bah that was a very long post -.-!

Happy Investing!

Personal Disclosure: I have COL in my portfolio.

This is not an investment advice and the author shall not be responsible or liable for any trading or investment decisions made based on this information.
The author hereby expressly disclaims any responsibility for any error or inaccuracy in the information.

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