WENCESLAO VS DEL MONTE: WHICH IS A BETTER IPO? | Marvin Germo
Which is a better IPO

WENCESLAO VS DEL MONTE: WHICH IS A BETTER IPO?

By: Marvin Germo | June 6, 2018

Battle between two IPOs in almost the same timeframe

This June, there will be two competing IPOs to look after – that of D.M. Wenceslao and Associates Inc. (DMWAI) and Del Monte Philippines Inc. (DMPI). As an investor who’s looking into buying shares for only one company, the question arises: Which stock should I buy? That question can be best answered by the subsequent discussion we’re going to make in this article. We will discuss the merits of each company, their financial health as well as the pros and cons of buying each stock.

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1. IPO Proceeds

Each company, will use the proceeds for different purposes. For DMWAI, it’s going to be used for expansion purposes – buying of land assets and development of pipeline projects, which is good and amazing. As you all know I have always been a fan of expansion. As for DMPI, unfortunately, it’s going to use the proceeds for the repayment and prepayment of certain debt facilities its mother company has. Which will know that I am not a big fan of.

If you’re a long-term investor, DMWAI has better chances of giving a better return due to growth prospect as investors love growth and the potential of growth. The construction company intends to build up its funds in the form of the IPO instead of borrowing money from the bank. What’s good to know also about DMWAI is that they have had a very low debt over the years and they’re able to maintain a good growth of revenue and profit. For DMPI, growth had been slacking and the proceeds are only for payment of debt. DMWAI offers new or primary shares whereas DMPI only sell secondary shares. This means that a large portion of the share will go straight to the company unlike DMPI where the shares that they will sell will go to existing share holders.

IPO Proceeds: Winner DMWAI

2. Company Performance

Both companies have been in their respective industries for a long time. DMWAI has been incorporated for more than 50 years while DMPI, over 90 years. Clearly, they’ve had their moments of successes and failures. DMWAI’s earnings come from its leasing of office and commercial spaces and land rentals. This led to the company bagging a net income of P1.56 billion last year. As can be seen on its financial statement, the mother company of DMPI has shown good revenue growth but the flaw can also be observed in its Cost of Goods Sold (COGS) since it has also been increasing over the years leading to a low bottom line figure. In fact, the company has suffered financial losses in the past. They’re a highly leveraged company and a chunk of its income is eaten by interest. This poses a risk for investors, old and new. Considering that DMPI is consumption in nature, it’s a waste that they are not able to take advantage of the consumption driven economy of the country.

Company Performance: Winner DMWAI

If we can place these two stocks into a historical comparison, it would have to look like Cemex Holdings Philippines Inc. (CHP) against Wilcon Depot Inc. (WLCON) and Golden Bria Holdings Inc. (HVN). CHP was also in the same position as DMPI; it intended to use the proceeds of its IPO for the payment of its debt while WLCON and HVN primarily did the IPO for expansion purposes. CHP as of this writing, has been so bearish and until now it has not shown any signs of upward movement. While the two other shares have raked it and helped a lot of early investors make a lot of money! Specially HVN this year! Congratulations to you guys who positioned early!

Of course, all bets are off when both of these stocks would list as it would be a purely supply and demand move. Even a bad company can go up. But if you are a long term investor looking for growth and a relatively healthy company, DMWAI would give you a lower risk than DMPI and a larger possibility of predictability of income. Of course for technical traders, it would be good to wait for the charts to develop first before you enter!

I hope this helps you decide!

Here’s are some videos of old IPOs: 

CLI

WLCON

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