OUTLIER: Investors snatch up Puregold after earnings, MSCI inclusion

By Marissa Mae M. Ramos, Researcher

INVESTORS took positions on Puregold Price Club, Inc. last week with analysts attributing it to its earnings result and its addition to a global equity index.

The grocery operator was the top actively traded stock last week with a total of P4.41 billion worth of 95.81 million shares exchanged, data from the Philippine Stock Exchange showed.

Shares in the Lucio L. Co-led company closed at P46 apiece on Friday, down 0.3% from its May 22 closing price of P46.15 apiece. Year to date, its price per share gained 14.9%.

“[The Puregold] stock was actively traded during the week following the release of full-year 2019 earnings as well as the anticipation for its first quarter 2020 results,” Unicapital Securities, Inc. Research Head Justin Lawrence J. Tembrevilla said in an e-mail.

He said its first-quarter results were expected as a “positive surprise” compared with other listed companies as most Puregold stores and S&R warehouses remained open during the Luzon-wide lockdown.

For Diversified Securities, Inc. Equity Trader Aniceto K. Pangan: “it is mainly a non-discretionary consumer stock that has been upgraded by MSCI to its list of big stocks replacing Security Bank Corp. this month of May.”

Anna Corenne M. Agravio, equity analyst at Regina Capital Development Corp., also described Puregold’s inclusion to the MSCI index as the biggest driver for investors.

“With news of [Puregold] being added to the index, investors likely bought it up in anticipation,” Ms. Agravio said in an email.

“In addition to this, [Puregold] is under less COVID-19 (coronavirus disease 2019) pressures than most listed stocks, since panic-buying led to a strong surge in sales a few days before the ECQ (enhanced community quarantine) was declared as evidenced in its recently released earnings,” she added.

The adjustments on the MSCI Global Standard index released on May 13 saw Puregold replacing Security Bank effective at the close of market on Friday.

On the same day, the company disclosed to the bourse that its consolidated net income grew 16.8% to P1.76 billion in this year’s first three months compared with last year’s P1.51 billion. Its net sales also expanded by 17.4% to P40.95 billion in the same period.

The retailer attributed the income growth to stronger than expected sales of its existing Puregold stores and S&R Membership warehouse clubs due to “higher consumer spending and pantry loading prior to the [lockdown] as well as the low inflation environment in 2020.”

The Puregold group ended the past quarter with 443 stores nationwide. These include 384 Puregold stores, 20 S&R membership shopping warehouses, and 39 S&R New York Style quick-service restaurants which were higher by four Puregold stores, two S&R shopping warehouses, and one quick-service restaurant compared with year-end figures.

On Wednesday, it reported its consolidated core net income increased year on year by 16% to P6.75 billion in 2019 while net sales inched up by 9.5% to P154.49 billion.

“Near-term, bottom line may be challenged despite healthy sales due to any and all unexpected costs brought about by the pandemic; but long-term, the potential for upside is still high,” Regina Capital’s Ms. Agravio said.

Unicapital Securities’ Mr. Tembrevilla shared this view as spillover effects from the health crisis will likely take its toll on consumer spending in the coming months.

“[Puregold] can achieve a high single-digit to low double-digit sales growth through store expansion, but not without challenges,” he said.

“Disposable income could take a hit due to the higher incidence of unemployment as the economy was on a standstill during ECQ. The dip in remittances as a result of job displacement of overseas Filipinos could also dampen consumer spending going forward,” he added.

For this week, Ms. Agravio sees Puregold’s resistance “solid” at P50, while support is positioned anywhere between P43 and P45.