Cebu Landmasters (CLI) is a real estate company that focuses on the Vis Min region for its business. A developer of vertical and horizontal housing and now, venturing on hotel businesses. Cebu Landmasters IPOed last year at P5 per share.
First, let’s dive in from its IPO. The IPO price should have been around 6.25. But due to some unknown circumstances (more popular company having the same IPO date). CLI (or the bankers) decided to discount the price down to P5.00 per share with much convincing of the founder Mr. Jose Soberano III, for it to have a more appeal to retail investors. Or perhaps so that bankers can sell this stock easily.
CLI is a fairly young company. Started in 2003 with the founder having to do everything himself. Giving softdrinks to potential buyers while doing powerpoint presentation. He does all the onsite inspection himself personally and treats its customers and employees as family. A trait that a great manager to have. It has been a family business since the other family members started to join from different fields of expertise. With his son the COO.
I would say Mr. Jose Soberano III and company has integrity and talent that is well equipped to succeed. Because of this, they attract the business of main players and landowners in Vis Min region. Even going head to head in market share with a national developer Ayala.
Mr. Jose Soberano III is a former Ayala senior manager. He is one of the pioneering members of an Ayala subsidiary in Cebu. His experience in real estate and the familiarity of the market is a competitive advantage.
Going into the business fundamentals, net margin at 39% and the company growing at a fast pace. Earnings per share is now at 1.0, P/E ratio of 4.86. The sales are fuelled by OFW remittances. They are now expanding outside Cebu. Market cap is at P8.1 billion.
As of this writing CLI stock price is P4.86 per share. Why is the company share price declining while the profits are increasing year after year is beyond me. My only guess is that, analysts movements are slow because if they do want to scuttlebutt research this company, they would have to commute to Cebu. And most investors are not aware of CLI because majority of them are from Luzon. Institutions won’t be buying this stock anytime soon because there has not been any consensus yet of its rating.
So as today, I think CLI is an undervalued gem. The founder has already showed his confidence by buying some shares personally. Then administered a P250M buy-back program. It has showed business strength by giving out P250M more in dividends. That’s 3% dividend yield and 3% increase in value from the buy-back.
So what is the intrinsic value of the stock? On IPO I would believe that the right price for this stock is at P5. Since the founder has been reluctant at that price to sell but still bankers managed to convinced him. So anything below P5 is good. But the company have grown in value since, 65% more in profits from last year. As you can see, the business has been over performing the stock, but the stock still won’t budge.
The risk I see on this company is when OFW stop remitting money. Or they stop trusting the company and going to competitors. Even so, buying at below P5 is a good margin of safety. Even if it falls more in price, it will just make it more attractive to buy at a lower price. I believe this is a low risk, high probability of high return stock.
I’m buying CLI…
How I knew CLI is undervalued? I teach all the secrets on how to get the intrinsic value of stocks in my The Complete Intrinsic Value Course.
what do you think of Cebu bandmaster now on the 15th of august?
Hi Richard, still the same.
CLI is in my watchlist with SHNG. I already took action with SHNG. I’ll wait for a nice entry point with CLI.
Hi there, saw this stock pick of yours and it is a very interesting company. It’s actually very undervalued given it’s equity. However, I wanted to ask how you view the free cash levels that the company generates every year?
I noticed in its cash flow statement that their expansion in earnings is not supported by its cash flow from operations in recent years (it’s been negative). Given that Buffett’s owner’s earnings takes into account this cash flow minus any capital expenditures, how does this change your view of the company? Interested to hear your thoughts on this since there might be false positives from just looking at earnings. Thanks!
Given that real estate companies have a delay in reporting earnings on their financial statements, you are not really getting the complete picture. There are different rules in reporting real estate developers vs companies that Buffett likes to invest in.