GMA7 Company Review (FY 2010) Part 2



For Part 1, click the link: GMA7 Company Review (FY 2010) Part 1.

Profitability:
ROE= 18.93%
Average ROE for 5 years = 18.37%
OCF/Equity = 25.55%
Net Profit Margin = 22.77%

GMA7's profitability is consistent for the last 5 years as shown in its average ROE. ROE of 15% or higher is considered profitable.

Growth:
Annal Net Income Growth Rate (5 years) = 8.93%

GMA7 has been doing a lot of things to reinvent its company and investing on the online and digital platform which is the future of television.




Debt and Risk
DE Ratio = 25%
Current Ratio = 3.7

GMA7 leverage level is low as shown in its DE Ratio. (For reference about ratio, please read the post "Definitive Guide to Stock Picking"). Liquidity is also very high at 3.7 thus company's cash reserve is more than enough to sustain its business.

The risk for GMA7 is the competition with its rival network particularly with ABS-CBN (ABS). Both GMA7 and ABS is claiming to be on the top spot. Another rival company is growing, ABC5, a broadcasting company by MVP (Manny Pangilinan).

Dividend:
Dividend Yield (2010) = 10%

In 2010, common shareholders recieved a total dividend of P0.7 per share. This prove that GMA7 is a dividend stock. Just recently, GMA7  distributed dividend at P0.45 per share. This is 6.62% Dividend Yield based on closing price last Friday, May 13, 2011.

Valuation:
PE Ratio = 11.81
PB Ratio = 2.25
Intrinsic Value = P11.30
Current Share = P6.80
Upside = 66.74%

click to zoom

Using discounted cash flow analysis, intrinsic value is calculated based on 2010 Annual Report. Cash flow are expected to grow at 8.5%. Discount rate used is 12%  which is based on highest historical Philippine 91-day T-bills rate(10%) plus 2% margin of safety.

Conclusion:
GMA7 is a value stock with very high dividend yield. It is a good buy for long term investor who seeks less volatile stocks and one which will provide a steady source of income through dividend.

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