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SECB: A Good Company in a Bearish Market | Marvin Germo
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SECB: A Good Company in a Bearish Market

By: Marvin Germo | November 19, 2018

The market in general has been bearish over the past few months triggered by a barrage of selling from foreign investors who have taken out money from our markets due to a variety of factors stemming from different economic issues both here and abroad.  As a result of that selling, the PSEI has been down roughly 23.8% from its record intraday high for the year.  With the BSP increasing interest rates and the market’s assumption that there will still be more interest rate hikes coming in the foreseeable future, banking stocks have been the most battered and the most hit as compared to other sectors in the market.

For those who have been following me for quite sometime and know the narrative of the investing part of my stock portfolio, you know that I like to buy amazing companies that are growing consistently. But beyond its growth, you know that I don’t just stop there, that I like to buy amazing companies when the valuations dictate that they are a good buy.

That’s why for this post, I want us to dig deep and analyze Security Bank (SECB) with the end goal to give you enough information to help you decide on what you should do while SECB is currently at 136 Pesos per share. Because at the end of the day, money is made in the market when everyone else is scared to buy and you buy amazing companies at bargain prices.

Earnings Growth

Let’s start with the earnings, you know me, I don’t just want to buy a good company but I want to buy a good company that has a good track record of earnings growth. If you look at the table below you see SECB’s earnings has been growing consistently for the past 5 years! Beyond that, their earnings have doubled in value over the same period! It’s relatively easier to double your income if you are earning in the Millions but to do it in the Billions, only great companies can do that!

SECB Earnings (Excl. Nonrecurring Items)
2013 4.88 Billion Pesos
2014 7.10 Billion Pesos
2015 7.33 Billion Pesos
2016 8.55 Billion Pesos
2017 10.265 Billion Pesos

To put this into perspective, Security Bank’s branch network is only one-third of the Big Three’s, and its customer base is only one-eighth of the Big Three’s. Its total assets comprise only one-fourth to one-third of the Big Three’s. Despite all of this, Security Bank’s 2017 net income was one-half of the Big Three’s Metrobank.

Another thing to consider is that the company has increased its interest income on loans from 7.9 Billion Pesos in 2013 to 17.36 Billion Pesos in 2017 this shows how healthy and organic revenue is flowing into the company. 

International Recognition

Just last month, the prestigious New York-based magazine Global Finance crowned Security Bank with the coveted title of Best Bank in the Philippines for 2018. This just further confirms the amazing fundamentals the company has and is a testament to the bank’s excellence in the delivery of financial services, and is a glimpse into how amazing they can still be in the future!

Valuations

At 136 Pesos per share, this places the company’s Price to Book ratio at 0.98 and a Price to Equity ratio at 11.05x.  This makes the valuations of the stock very attractive already compared to where it was before!

Foreign Institutional Buying

It’s also no secret that Security Bank has consistently delivered superior returns on shareholders’ equity, cost efficiency, and asset quality—so much so that Mitsubishi UFJ Financial Group, Inc. (MUFG) actually invested 37 billion pesos in equity capital for a 20% stake in Security Bank in 2016. It’s the largest equity investment from a foreign investor in a Philippine financial institution to this day. If that’s not a vote of confidence, I don’t know what is.

Technicals

From a trend perspective, the stock is still proceeding towards its donward channel, in line with the bearishness of the banking sector and the broad market as a whole.

While for those who want to analyze the stock from a range perspective, the next support of SECB could be pegged at 132.5 Pesos. Should that price range hold and the stock bounces from that support level, the next possible mid term swing could cause the stock to push towards 169 Pesos. Should the stock breakout from 169 Pesos, the next target could be pegged at 194 Pesos.

To balance everything out, if the stock fails to hold the 132.5 Peso level support, the stock could possibly retrace further to 122 Pesos for the short to mid term.

Putting things together

SECB poses as a promising prospect for the long-term as the company is aggresively growing, the company’s valuation is currently attractive and is still emerging as a major player in its industry. Lastly, the company has now been internationally affirmed as among the best in its industry and will be sticking around. In fact, this Global Finance award is only one of 24 awards it has won this year alone. With its track record of accolades and exponential growth, it’s definitely a company to watch out for!

If there’s one thing I know about stocks, value always preceeds price.

*Stock Data based on the closing prices of November 14, 2018