Outlier: Jollibee stock a bargain after slide in 2019, say analysts

DESPITE investors unloading shares of Jollibee Foods Corp. for the majority of 2019 due to profitability concerns, the stock may once again be back on the shopping list with one analyst saying the current stock price is already at a bargain.

The Caktiong-led company was the ninth most traded stock last week, with P381.92 million worth of 1.77 million shares exchanged hands on the local bourse during the two-day trading week from Jan. 2 to 3, data from the Philippine Stock Exchange showed.

Jollibee shares closed at P214.80 apiece on Friday, down 0.56% from its closing price of P216 each on Dec. 27. Its stock price registered a full-year loss of 26% in 2019.

“Jollibee’s significant drop last year brought on by investors’ initial assessment of its CBTL (The Coffee Bean & Tea Leaf) acquisition had been overdone, thus, presenting a bargain,” said Philstocks Financial, Inc. Research Head Justino B. Calaycay, Jr. in an e-mail.

To recall, Jollibee reported on July 24 it will acquire California-based CBTL for a total of $350 million. The coffee chain would then add 14% to its global system-wide sales and 26% to its total store network. This marked Jollibee’s largest acquisition to date following the company’s $210.25-million takeover of American fast-food chain Smashburger.

Reports noted CBTL incurred losses amounting to $26.8 million and $21.1 million in 2017 and 2018, respectively, with the loss in 2018 being equivalent to around 12% of Jollibee’s profits that year.

Jollibee has completed the acquisition on Sept. 24, two months after the deal was announced.

The listed firm bought CBTL on a debt-free basis, which means that the latter will have no debt upon acquisition. JFC used its Java Ventures, LLC as the acquiring entity. This is a US-based unit of Singapore-based Super Magnificent Coffee Co. Pte. Ltd., which in turn is a subsidiary of Jollibee Worldwide Pte. Ltd.

“Expectations of sustained robust consumer spending this year brings the dominant food retail as among the favorites, depending solely on its legacy brands. Additionally, its ability to bring Smashburger and CBTL to profitability adds another positive element to the outlook,” Philstocks’ Mr. Calaycay said.

Jollibee reported on Nov. 14 its attributable net income in the third quarter fell 8% to P1.87 billion. Revenues went up by 7% to P43.18 billion during the period, but was weakened by the 8% rise in direct costs to P36.75 billion.

In the nine months to September, the company’s attributable net income dropped 26% to P4.53 billion with an 11% rise in direct costs to P107.61 billion weighing on revenues, which grew 9% to P127.21 billion.

Philstocks’ Mr. Calaycay noted that while it is hard to say whether Jollibee’s share price would move this week, he is “confident of [its] prospects for the rest of the year and beyond” as the homegrown food giant “remains a market leader.”

Meanwhile, Mercantile Securities, Inc. Analyst Jeff Radley C. See said the stock “might move sideways” due to continued selling pressure.

“It is best to wait for a strong support level before getting in. If the stock can hold P210, there is a chance for it to move up and hit its resistance levels,” Mr. See said.

Mr. See also noted the stock is “fairly valued” at its current level.

“The market is still waiting for Jollibee’s expertise if their new acquisitions can give them good returns,” he said.

Mr. See pegged the stock’s support levels at P210, P204, and P198, while resistance levels are at P224, P233, and P238.

For Philstocks’ Mr. Calaycay: “Strong support remains at the P180 level, with initial catch level at P200-207. Resistance is initially at P227-P230.” — Lourdes O. Pilar