A fresh report from stock brokerage house CLSA suggested PLUS’ price is due for another major move higher, backed by its solid business model and strong demand for gambling that’s forcing competitors to adjust their strategy.
Released last May 9, CLSA raised PLUS’ 12-month target price to P109 per share.
More valuable than all conglomerates except SM?
This would value DigiPlus, chaired by tycoon Eusebio Tanco, at about P485 billion—overtaking the market cap of Ayala Corp. (P354 billion), the country’s oldest conglomerate and owner of corporate giants such as Ayala Land and Globe Telecom.
Only SM Investments (P1.04 trillion) would remain ahead as the Philippines’ most valuable conglomerate.
CLSA, led by country head Mitzi de Dios, has been closely tracking the success of PLUS, and calls have proven accurate so far.
Price target nearly achieved
Its May 9 report, titled “Relentless fun” and penned by Amos Ong, rated PLUS a “high conviction outperform”.
Last Feb. 12, CLSA also rated PLUS a strong buy with a target price of P55.40 per share.
With PLUS trading near P30 each, this was considered a bold call at the time.
Just three months later, that bold target is nearly in sight, with PLUS reaching another all-time high of P53.70 per share on Friday thanks to surging gaming revenues.
Soaring gaming revenues
Contributing to this price upgrade was PLUS’ strong first quarter profit of P4.2 billion (+110 percent from the same period last year) and monthly active users of 7.5 million, beating their forecast by 9 percent.
Ong said the average player spends P1,000, bringing gross gaming revenues to a staggering P22.8 billion.
He added that the firm also benefited from lower gaming taxes under Philippine Amusement and Gaming Corp.’s drive to encourage players on illegal platforms to switch to legal ones.
“Given we expect stronger earnings growth in the next few years versus Philippine consumer peers, we lift our target PE multiple from 12.6 times to 20 times, above the consumer market cap weighted average of 15.3x times,” Ong said in the May 9 report.
In simpler terms, the brokerage said PLUS deserved a higher valuation than most consumer stocks because it’s expected to grow profits faster than its peers.
What’s next?
Moving forward, Ong expects PLUS to continue growing its user base, cash flow and dividends even with a minimal 1 percent net income contribution from Brazil over the next two years.
This means there’s further price upside if the company can replicate its success in the Philippines in Brazil and other overseas markets it may be targeting.
Miguel R. Camus has been a reporter covering various domestic business topics since 2009.
