PGOLD: A cut above the rest

We are upgrading our recommendation on PGOLD to BUY after raising our FV estimate to Php55/sh

due to our improved outlook on PGOLD’s growth capabilities. PGOLD has been growing faster than expected and prospects continue to be bright for the company, especially as it focuses on expanding outside Metro Manila which is more underpenetrated and where competition is less intense. As such, we are increasing our projections on the number of store openings and same store sales growth. Revenues will be further boosted by the full-year contribution of the two S&R stores completed in 2013. At PGOLD’s current price of Php46/sh, potential for capital appreciation remains significant at 19.6%.

 

More store openings than expected. We are raising our projection on the number of store openings

in light of PGOLD’s faster-than-expected store rollout and positive growth prospects. PGOLD has been growing faster than expected with 40 new stores opened in 2013, significantly higher than the 25 store openings we expected. This is on top of the 24 stores added through the acquisitions of Company E and San Roque Supermarket. PGOLD is also set to meet its target of opening 25 stores this year. It has already opened 10 stores during the first quarter while the remaining 15 locations have already been secured.

 

Geographic expansion will ease same store sales. We are also adjusting our forecast on same

store sales growth (SSSG) to an average of 1% annually, up from our previous estimate of -1%. Moving forward, PGOLD should report healthier figures as it focuses its expansion in areas outside Metro Manila which are less saturated and where competition is less intense. By expanding in these areas, management believes that it will be able to address the issue of cannibalization between its stores. According to PGOLD, it already registered SSSG in the mid-single digits during the first quarter and it expects positive SSSG for the remainder of 2014, an improvement from the flattish figure registered in 2013.

 

After factoring in faster store expansion and higher same store sales growth, we now expect revenues

to grow by 23.8% in 2014 and 12.7% in 2015, higher than our previous forecast of 11.6% and 9.8%

Source: Col Financial