Ali Case Analysis

Topics: Financial ratio, Real estate, Financial ratios Pages: 5 (1352 words) Published: February 8, 2012

Ayala Land Inc. is a leading real estate company offering properties for both residential and commercial customers. The company reported strong financial results based on their declarations in the past 5 years. In this case, the group took the point of view of a minority investor who would like to determine if he should sell, hold or buy more shares. The case was analyzed using three screens which consider both internal and external factors to the company: financial ratio analysis, industry news/trends and technical analysis of the share price. Based on these screens, the group concluded that this is a good time to BUY Ayala Land shares.

Point of view of a minority investor

Ayala Land, Inc. (“ALI”) is the largest and most diversified real estate company in the Philippines. Its main business includes residential development, shopping centers, offices and strategic landbank management. Other businesses include construction, property management, waterworks operations, and hotels. In 2010, the residential development accounted for the bulk of its recurring revenues at 62%, while shopping centers and office accounted for 13% and 7% respectively. [1]

As a result of ALI’s profitable operation in 2010, it achieved a net income of Php5.5 billion which is 35% higher than in 2009. ALI also raised the dividend payout ratio from 16% to 30% and increased total cash dividends paid to Php1.2 billion, from Php780 million in 2009.

Ayala Land Inc. is the leader when it comes to real estate development. Compared to other developers, Ayala Land Inc. has the most diverse projects to date; from High-end to Low-end, vertical and horizontal residential developments, commercial, office leasing and retail service.

Should I buy, hold or sell ALI shares at PhP17.98/share[2]?

The group used three screens to assess potential of ALI shares namely, Financial Ratios, Industry News which affect ALI and Technical Analysis of ALI’s share price.

The group conducted ratio analysis based on ALI’s published financial statement for from 2006 to 9M 2011. The ratios analyzed sufficiently covers the critical ratios that measure ALI’s profitability, operating efficiency, and leverage. To financial ratio analysis, the group also looked at trends and news in the real estate industry which could affect the position of ALI in near-term and the long-term, including how it is perceived to fair versus its competitors in the succeeding years. The group also conducted a technical analysis of the share’s performance in the market against key metrics such as MACD and RSI.

5.1 Financial Ratios of ALI from 2006 to 9M 2011

ALI has a strong capability to settle short term obligation with their current ratio being consistently higher than 1. Furthermore, about 30% of their current asset is in Cash and another 30% is Accounts Receivable from their installment sales, the latter being tested for impairment on a regular basis. Albeit, it is worth noting that Megaworld has a higher current ratio at 2.69:1 in 2010.

In terms of leverage, the share of debt to total funding has been steady at less than 50%, except in 2011 when the firm borrowed P10Bn through issuance of notes to fund their aggressive expansion.

The firm’s ROA and ROE has been stable and positive in the past 5 yrs, albeit showed a dip in 2009 earnings driven by a slowdown in the macroeconomy. ROE of ALI is higher than Megaworld driven by more robust revenue growth of the former.

Overall, we can surmise that ALI is in liquid position, with prudent borrowing policies and debt/equity structure and stable return on investment.

5.2 Key Trends and Industry News
Property stocks did not perform well in 2011 due to the issue of oversupply[3]. Real Estate...
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