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Monday, September 15, 2014

Reader Question: What's your take on $MWC at these levels?

Hey there, it's always good to here from you ;-)

Here's The View

If I had some cash in my portfolio, I wouldn't mind to start accumulating at current levels. I would also make sure that my sizing is in such a way that when the price continues to drop from my entry point I'll be a happy buyer at lower levels and I can stomach the paper losses of my initial entry.

I came to this view due to the following reasons.

1. $MWC is fundamentally sound stock selling at attractive valuations.

$MWC (Manila Water Co) as Bloomberg describes it is a full service water utility company serving the Philippine Market. 

Though MWC's customer base is mainly in the Metro Manila, the company is also diversifying it's customer base within the country by catering to non-luzon markets such as Cebu and Boracay, on top of this they are also diversifying regionally in the Asean region with specific interest in the countries Vietnam, Indonesia and Myanmar.

That said we can say that MWC is a business with a strong source of income coming from it's cash cow region - Metro Manila with exciting growth prospects in the future to become not just the water-seller in Metro Manila/Philippines but a key player in the Asean region as well. But of course there are risks.

The main concern with MWC right now is the increasing regulatory risks involved on water tariffs. Simply put, there so called "cash cow" region - Metro Manila is being threatened. There is a risk that the price they will sell the water in Metro Manila will be lower hence this could greatly reduce their sales and thereby earnings and thereby the stock price.

So the question here is do you think these concerns is permanent and will cause MWC to go out of business? Or is this just one of those "bumps" along the way? Let's dig in deeper to strengthen our conviction...

2. Bullish Technically and has pullback to support

MWC 10Y Weekly

MWC 2Y Daily

3. Pays dividend in the last 10 years without Fail

MWC is very good dividend payer even during the worst of times (2008-2009) financial crisis. If a financial crisis does not stop MWC to pay out dividends, one would think that a very drastically bad event would have to happen to make it stop paying dividends.

Also, MWC's current Payout Ratio is at 34% so it has a safe room for earnings volatility.
Payout ratio is Dividends Payed/Earnings - lower the number, the more conservative is the dividends being paid.

4. Dividend Yield levels are at the higher end historically

Buyers step in when MWC hits 3.5 dividend yield. Since we're at 2.92 right now we could say we are near dividend yield support.

and last but definitely not the least....

5. Ayala Corp is a buyer during the "Bad News", buying 2.8 Billion worth of MWC stock

If the biggest company insider, Ayala Corp - thinks that the drop due to the "tariff concerns" is just a bump along the way, I believe they are in a better position to make a better judgement than me so I would ride a long.

So is MWC the best stock out there? I don't know... What I would say is given the points mentioned, It is my view that MWC is better than cash hence "The View" at the beginning of this post. Hehe.

Personal Disclosure: I don't have position on the MWC because I'm already all in on my other positions and there's very little cash in my COL portfolio. Lastly, please also note that I may miss some other risks on MWC so please take this post with a grain of salt.



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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