Ayala Land-SSI Group’s FamilyMart For Sale? Media Expert Utters an Economic Taboo: OVERSUPPLY!

Last May, the Inquirer regaled us with “Vacant space troubles malls in Metro Manila”

Today, the same outfit (and reporter) reported that the convenience store chain of retail titan Ayala Land injoint venture with high end retail specialty SSI Group is up for sale:

The Philippine retailing business of FamilyMart, partly owned by the Ayala and Tantoco groups, is on the auction block, signaling a shakeout in the highly competitive local convenience store business.

Several industry sources confirmed to the Inquirer that the local network of FamilyMart—which has around 72 stores to date—has been offered to prospective new investors in recent months.

The first lesson from the article is that it demonstrates of the close ties between media and key establishment organizations. Internal corporate affairs leak into public as news through select media outfits.

Though presented as news, another way to read the article is to construe it as an advertisement in favor of the sellers.  Established institutions need not pay for ads space. They need only to whisper into the ears of their most favored reporters and their agenda gets aired for free!

The thing here is that this exhibit why media agencies typically act as megaphones for the mainstream’s interests.

Back to the article.

Both Ayala Land and SSI Group replied to the PSE that in the case of FamilyMart, they are “currently exploring various options intended to strengthen and grow the business” and that “no definite course of action has been finalized”.

In short, neither did they deny nor confirm the report!  

Well, that response should be obvious.

A confirmation of interest to sell could have been discerned as an act of desperation. Thus such would only enervate the seller’s pricing power. 

The intent has been to insinuate its actions, most possibly meant to generate buying interests. You see, the article was an advertisement!

In anticipation of the PSE’s query, Ayala Land’s template response resonated in the article: (bold mine)

“Asked about the rationale for the potential divestment, a source from the Ayala group said the conglomerate was only evaluating its options, adding that 24/7 retailing—a business that required scale—was not really part of Ayala Land’s core business.

Hasn’t ALI’s business been mostly about consumers? Retail and real estate in specific? What makes 24/7 a non-core business, when it is about consumer retail? Low margins, perhaps?

Or this?

 

FamilyMart shed 31% or 32 stores from the end of the 2Q 2016 to 2Q 2017. The biggest number of closures (26 stores) occurred in the 1H of 2017.

Almost the same numbers apply to the gross selling area; FamilyMart dropped 37% or 4,971 sq.m. from 13,439 in 2Q 2016 to 8,468 in 2Q 2017. The bulk of the shutdowns (3,163 sqm.) happened in the 1H of 2017!

Naturally, these closings came in response to losses.

From SSI’s 2016 annual report: “The Group’s share in the losses of Philippine FamilyMart CVS, Inc. was ₱145.8 million as compared to ₱80.0 million in 2015.”

From SSI’s 2017 2Q 17Q: “The decline in losses of joint ventures was a result of a 22.1% decline in the Group’s share of FamilyMart losses to ₱37.0 million”

Taken together, FamilyMart was a LOSING venture! And it was hardly because the 24/7 store model was not part of Ayala Land’s core business. People intuitively shun ownership of loses.

Importantly, the shutdown of 32 FamilyMart’s outlets contributed to the retail vacancies! FamilyMart’s numbers may be small, but it has been emblematic of the conditions of marginal players.

The article goes on to explain the likely cause: competition.

“In the 24/7 retailing business, competition heated up in the last six years with the entry of new brands that sought to challenge the two leading players 7-Eleven and Mini-Stop, respectively run by Philippine Seven Corp. (PSC) and Robinsons Retail Holdings Inc. (RRHI).

But the article didn’t mention this…

The market leaders (7-11 and Mini-Stop) have been suffering too!

Yet the frantic race to build supply persists…

“Aside from Family Mart, the Puregold group also brought another foreign brand—Lawson—into the local market while the SM group brought in Indonesian brand Alfamart. Real estate magnate Manuel Villar, for his part, has also built his own convenience store network using his own brand “All Day.”

Need I say more???

Finally, one ‘expert’ seems to get it… (bold mine)

“All retailers were expanding at the same time, so the growth in selling space just outstripped the growth in consumer demand in this retail segment—a classic case of oversupply andfragmentation of the convenience store market resulting in expected returns failing to materialize,” said Jose Mari Lacson, head of research at ATR Asset Management.

I raise the verb ‘seems’ because of the ex-post nature of narrative. Or, the expert explained from what has already happened.

Yet it is hardly about fragmentation, but principally the case of OVERSUPPLY. I wouldn’t know how to define fragmentation on a one-store concept retail chain.

Here’s the thing.

The centerpiece of the race-to-build supply in the retail space has been from the expectations of an endless stream of purchasing power by residents.

Since consumer retail expansion has been occurring in virtually ALL categories, what should stop the convenience store squeeze from spreading to the other retail segments (or periphery to the core transmission)?

 

Remember, close to 100% of retail transactions have been based on the peso (credit or cash).

And these have transpired even as the BSP and the banking system has been flooding the system with a countless number of pesos!

What more when ‘free money’ hits the proverbial wall????

Construction Boom? HLCM’s 2Q and 1H Sales and EPS Growth Crashed! Frenzied Bids on Property Issues Sends the Phisix to 8,037

Last weekend, I pointed out that the government’s measure of construction material prices - retail (CMRPI) and wholesale (CMWPI) – revealed weakness in the construction industry. And if these numbers showed signs of relevance to reality, then such would likewise be manifested in the financial performance of construction and construction related companies. I zoomed in on the cement industry.

By next month, the major cement manufacturers will be disclosing their performance for the second quarter. We should see if quarterly revenues of these companies will resonate with the quarter’s price activities.

Construction BOOM? The Government’s Construction Material Prices Have Been On a Swoon, Why??? July 24, 2017

Holcim Philippines published their 2Q and 1H activities today.

There you have it.

HLCM’s gross revenues plunged a staggering 20.84% in the 2Q! The 2Q sales crash weighed on the 1H performance, which recorded an enormous 16.74% dive in revenues. 1Q sales tumbled 12.5%.

HLCM’s published 2Q and 1H eps almost halved.

This quarter’s dismal financial performance represents an extension of the previous 2.

The difference has been that the deterioration for the 2Q has only exacerbated.

Now, one company’s misfortune may not reflect on the industry. So I’d have to wait for disclosures from HLCM’speers, namely Aboitiz, Cemex, and Eagle.

Property Fueled Phisix 8,037

After Friday’s wonderful magic of turning ore into gold, the establishment’s campaign for the Phisix to attain a new record comes as no surprise.

Nevertheless, the weight of such task has been borne mostly by the property index.

Today, properties surged by 1.68% on the back of considerable gains by all PSEi components, specifically ALI +1.74%, SMPH +1.76%, MEG +5.5% and RLC +1.62%.

Ayala Land’s fresh record has been an outcome of a gamut of violent pumping (lower window). Prices of many firms have been subjected to similar dynamics.  Vertical prices are signs of price instability.

Curiously, today’s early pumping was met by a mark on close DUMP (right window)!

Pumps and dumps are a healthy sign of markets????

More…

 

Gains from the top 4 of the 5 biggest issues accounted for about 40% of today’s .83% advance. (upper window)

Gains of the sixth to the tenth ranked issues represented about 12%.

In gist, 7 issues delivered more than 50% of the day’s activities, and thereby, Phisix 8,037.

Put differently, the thrust to forcibly heave the Phisix above 8,000 has mostly emanated from a few issues being violently pumped.

By the way, SCC also hit a record high today.

As one would note in the lower window, the cargo of the PSEi’s PER distribution has been focused on a limited set of issues.

The PSEi’s AVERAGE PER was last at 20.8 while the free float weighted PER was at an exorbitant 1996 level of 25.45!

Back Up The Truck at Phisix 8,000?

Greed has come a long way.

I came across a sell-side article promoting the PSEi, despite being very expensive, as a buy!

As a side note, when experts talk about forward PERs expect these to (ritually) overestimate actual performance. Take for example HLCM. Given the infrastructure meme, has anyone predicted a crash in actual financial performance???  Yet, HLCM’s share prices, which apparently remains anchored on the infrastructure story, has hardly reflected on these developments/

Well, articles like these hardly ever say explain why ‘expensive’ merits a buy - of course, except for the overblown G-R-O-W-T-H story.

Such spins never dwell on WHY the PSEi has been ridiculously overpriced in the FIRST PLACE. In spite of evidence, extravagance has been assumed as an anomaly. Such is a manifestation of how theory and empirics have been overwhelmed by blind faith.

There hardly have ever been discussions of HOW marking-the-close PUMPS have contributed to the current valuation levels.

Barely will any of such articles deal with the repercussions of violent price pumps and of excessive speculations!

Additionally, buying very expensive stocks comes with GREATER risk of losses. But for them, risk has mostly been consigned to the dustbin. Free money is unbounded.

Also, the public has been made to believe that there are endless numbers of greater fools.

More importantly, for fiduciary entities, authors hardly ever disclose that buying lavishly priced stocks BENEFIT these institutions at the expense of their clients.

Finally, if there is one notable development, the surge to 8.000 comes with significantly DIMINISHING volume compared to 2016.