As a five-month old small time trader, reading the comments on numerous threads from Facebook stock market groups provides me a free education how to conduct my own trading activity. Just recently, one stock caught my attention due to frustration of those who suffer big paper loss as a result of buying FNI on the basis of "experts'" analysis.
Out of curiosity, I checked FNI's company disclosures. I focused particularly on its 2014 Annual Report and 2015 1st Quarterly Report. I was looking for an answer for the constant decline of FNI's market price, and at the same for a potential gain. As the saying goes, "where there's smoke, there's fire." I know it's risky, but that's part of a trader's life.
After reading the reports, I found details that are both popular and unknown to FNI owners. I am hesitant to post the unknown details on those threads for I do not want to be misunderstood as making fun of the pain of those who are losing their hard-earned money. Instead, I decided to write about it hoping that this article could help somehow in finding answer for FNI's decline. I know that the truth hurts, but knowing it is better than relying on false hope.
Before I share what I found, I want to clarify that I might be mistaken in my analysis. This is just my personal interpretation of the mentioned reports. I encourage FNI owners to check the documents for themselves.
These are the details:
1. FNI's book value as of 1Q2015 is 0.29. Of course, some technical analysts who consider book value as irrelevant in their trading would dismiss its importance. And others would even argue that the book value approach is not applicable to FNI. I respect their opinion. However, as for me, unless the firm has an established performance of earnings for several years, I would never venture buying a stock with a high Price to Book Value ratio.
2. Increase in authorized and outstanding shares. From 7,300,000,000 authorized shares in June 2014, FNI has increased them into 35,871,428,572 as of December 2014. When it comes to outstanding shares, they were increased from 7,003,920,939 to 17,467,014,310 as of December 2014. I think it is important to understand the implications of these increase on your portfolio. Knowing the difference between the authorized shares and the outstanding shares affects your investment in that stock due to its potential for stock dilution. This is what Investopedia has to say about this:
"Dilution reduces a stockholder’s share of ownership and voting power in a company and reduces a stock’s earnings per share when new stock is issued. The larger the difference between the number of authorized shares and the number of outstanding shares, the greater the potential for dilution."
Concerning the increase in outstanding shares, I think the acquisition of PGMC has a lot to say about this. In exchange to 99.5% ownership of PGMC, FNI issued 10,463,093,371 common shares to the 13 stockholders of PGMC. This is how I understand that "share swap" thing.
3. PSE's suspension of FNI. PSE suspended FNI from public trading due to the firm's non-compliance with the 10% minimum public ownership requirement. This suspension took effect during the 1Q2013. As of December 2012, FNI's public float was 2.41%. The suspension was lifted after FNI complied with the PSE requirement and it resumed public trading again beginning 2Q2013. At present, FNI's free float level is 22.91%. It is just interesting that FNI declared a huge cash dividends of 1.656/share on May 22, 2013 while the lifting of the suspension happened on June 2013.
4. Government incentives. Verify if this is true. Is it really true that PGMC's fiscal incentive and income tax holiday will expire this 2015?
5. Third largest nickel producer. This is popular. I think most investors know this that makes FNI's "low" price attractive. PGMC is considered as the third largest nickel producer in the Philippines. As of 2014, PGMC produced 10% of nickel ore production.
6. Unrestricted earnings as of December 2014: 4,691.5 M. This is another thing that makes FNI attractive. Considering this, the speculation that FNI will soon be delisted from PSE is unlikely to happen.
7. History of Market Price from 2012 to December 2014. As of 2012, 4Q was the best. It gave both a great buying and selling opportunities with a low price of 1.21 and a high price of 3.34. Realizing this, what's happening right now in FNI's price is not something new. As of 2013, 2Q was the best. You could buy FNI @ 0.9 and sell it @ 1.98. Reaching 2014, 1Q was the best quarter to buy @ 0.96 and between 2Q and 3Q as the best time to sell @ a price between 3.00 to 3.01.
Question: What does this price history tell you about trading decision concerning this stock?
8. Key Performance Indicators. As of 1Q2015, FNI's ROE and ROA are (4.172%) and (3.030%) and its EPS was (0.030879). In other words, 1Q2015 had a negative return. There are traders and investors that such negative financial report is a sufficient reason to sell this stock. However, just focusing on 1Q2015 would give a superficial impression that buying FNI is not profitable. But if you will review the firm's performance during the previous year, you will get a bigger picture of the company's financial standing. As of AR2014, FNI's ROE and ROA were 89% and 63% and its EPS was 0.66. Now, that's impressive! Another thing I like about this company is its small debt. As of 2014, its Debt to Equity ratio was 0.41 and it was even reduced down to 0.369 this 1Q2015.
9. Stock subscription. FNI deposited 50M of the 200M stock subscription in PGMC on March 31, 2015.
10. Production period. PGMC mine is only in production durng drier months of the year between April to October of each year. This explains the 216,277M loss in 1Q2015, which represents the recurring and general administrative expenses of the company.
After reading these details, can this blogger be categorized as an FNI hyper or a basher? I can't control what you think. I am not an FNI hyper for I do not own any shares in this company. At the same time, I am also not a basher for I intend to buy at my entry price. My goal is just to satisfy my curiosity about the popularity of this stock. I also wish that understanding these details would be of help somehow particularly for those who suffer an emotional setback as result of paper loss. As for the "joke" that FNI's price could sink down to 1.00/share and even to 0.50/share is a possibility that present owners must prepare themselves emotionally. However, this is not the end of your world. The stock could bounce back anytime.
After reading these details, can this blogger be categorized as an FNI hyper or a basher? I can't control what you think. I am not an FNI hyper for I do not own any shares in this company. At the same time, I am also not a basher for I intend to buy at my entry price. My goal is just to satisfy my curiosity about the popularity of this stock. I also wish that understanding these details would be of help somehow particularly for those who suffer an emotional setback as result of paper loss. As for the "joke" that FNI's price could sink down to 1.00/share and even to 0.50/share is a possibility that present owners must prepare themselves emotionally. However, this is not the end of your world. The stock could bounce back anytime.
