By Christine Joyce S. Casteñeda
Senior Researcher
THE acquisition of California-based The Coffee Bean & Tea Leaf (CBTL) drove Jollibee Foods Corp.’s stock price down to near 52-week lows, with the stock slightly rebounding on Friday following the presidential veto on the bill that looks to impose tighter controls on labor contracting.
A total of P5.707-billion worth of 22.9 million Jollibee shares exchanged hands from July 22 to July 26, making the stock the most active on the trading floor last week, data from the Philippine Stock Exchange (PSE) showed.
Jollibee’s stock price closed at P252 per share on Friday, down 9.9% from its P279.8 finish on July 19. Year-to-date, it is down 14%.
Analysts interviewed by BusinessWorld attributed the stock’s movement mostly to Jollibee’s acquisition of CBTL.
“This posed risks to [Jollibee’s] operating income as CBTL has been a losing company in the past years attributed to high operating costs. In our view, the acquisition would be earnings dilutive in the next three years given the competitive nature of the coffee industry,” said Unicapital Securities, Inc. Research Head Wendy Estacio in an e-mail.
Timson Securities, Inc. equity trader Jervin S. de Celis said investors are worried as CBTL has incurred losses amounting to $26.8 million and $21.1 million in 2017 and 2018, respectively.
“The loss in 2018 is equivalent to 12% of Jollibee’s profits,” he said in a separate e-mail interview. “Since Jollibee is also one of the most expensive consumer stocks in the PSE, CBTL’s drag to [Jollibee’s] profits may not be able to justify its pricey valuations.”
In a disclosure to the stock exchange on Wednesday, the homegrown food giant announced it will acquire CBTL for a total of $350 million. The coffee chain will add 14% to its global system wide sales and 26% to its total store network.
According to Bloomberg data, this marks Jollibee’s largest acquisition to date following the company’s $210.25-million takeover of American fast-food chain Smashburger.
News of the acquisition sent Jollibee’s stock price tumbling down by 8% to close at P251 per share on Wednesday and another 6% down further to P236 per share on Thursday. Bargain hunters took positions the day after, bringing the stock price up by 6.8% on Friday to P252 per share.
“It is not usual for the blue-chip stocks to decline more than 5% in a day, given that blue-chip stocks are fundamentally strong,” said Philstocks Financial, Inc. research associate Claire T. Alviar in an e-mail.
CBTL is owned by International Coffee & Tea Leaf (ICT) in Los Angeles, California. ICT recorded an attributable loss of $21.05 million in 2018, lower than its attributable loss of $26.77 million posted in 2017, Jollibee’s disclosure to the stock exchange showed.
Philstocks’ Ms. Alviar also noted foreign investors dumped Jollibee shares, with PSE data showing net foreign selling of the stock at P1.118 billion last week, 396% higher than the P225.376 million net selling a week prior.
Aside from the CBTL acquisition, Ms. Alviar said that investors were also keeping a close eye on the status of the security of tenure bill for most of the week, explaining that Jollibee was expected to be among those affected by way of higher labor costs if the bill becomes law.
The analyst said that President Rodrigo R. Duterte’s veto of the proposed law strengthening workers’ right to security of tenure last Friday was a factor in the slight rebound in Jollibee’s stock price.
The proposed law bans the practice of hiring workers for five-month stints in order to circumvent the requirement that they be automatically granted regular status on the sixth month of employment.
Jollibee posted a net income attributable to the parent of P1.535 billion in the first quarter of 2019, down 14.7% from the P1.799 billion in the same period last year.
Philstocks’ Ms. Alviar said the company’s net income may reach P8.2 billion this year, citing the higher system-wide sales growth, slowing inflation, and dilution of earnings in acquiring CBTL.
For Timson Securities’ Mr. de Celis: “Income for 2019 may turn out flat at P8.3 billion or lower than 2018’s figure despite the calmer inflation because the newly consolidated Smashburger reported a loss of P380 million, dragging [Jollibee’s] earnings before interest and taxes by double digits.”
“In the short run, Jollibee’s earnings may be dragged by the underperformance of Smashburger and CBTL , but probably in about [three or more] years’ time, these two companies may go breakeven in profits, which will bolster Jollibee’s revenues and widen its presence in several territories to become a global player in the coffee market,” Mr. de Celis added.
Philstocks’ Ms. Alviar pegged the stock’s support at P230 to P240 while resistance is around P280 to P290.
For Mr. de Celis: “For now, we can set the support area at P231 which was [Thursday’s] low. Resistance is at P260.”
For Unicapital’s Ms. Estacio: “Based on our valuation, it’s good to accumulate near the P230-240 per share range, as the stock is now trading below one standard deviation below its five-year historical average price-to-earnings of 36.1 times.”
