Consumer companies are in for a better year

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(Source: Manila Bulletin | January 21, 2018)

While the market awaits the result of the country’s 2017 full-year and fourth quarter economic performance, participants are advised to look at the consumer sector, which would benefit from the healthy economy and tax reform program.

COL Financial Group, Inc. said consumer companies are in for a better year this 2018 as it forecasted a faster median earnings per share (EPS) growth of 11.6 percent versus 7.8 percent in 2017.

This, according to the listed brokerage firm, will be driven by resilient revenue growth, capacity expansion and better margins as numerous companies overcome company specific challenges.

“In fact, profit growth could surprise positively as higher disposable income resulting from the reduction in personal income taxes due to the TRAIN [Tax Reform for Acceleration and Inclusion] could lead to stronger domestic consumption and revenue growth,” COL said.

The company’s top picks are D&L Industries, Inc. (DNL) and Shakey’s Pizza Asia Ventures, Inc. (PIZZA).

COL said both companies have more attractive earnings growth potential compared to peers in its sector and are still reasonably valued.

“Recall that DNL’s stock price reached a peak of P13.64 per share (/sh) last year only to drop to a low of P9.98 per share after releasing disappointing second quarter earnings result. Nevertheless, we believe that DNL is poised to regain its growth momentum this 2018 as initiatives to grow its export business is starting to bear fruit,” COL said.

“Aside from this, the margin of its commodity business is showing signs of bottoming at around 3.8 percent. We forecast DNL’s profits to grow by 17.0 percent this year to P3.3 billion,” it added.

Meanwhile, COL said it expects PIZZA to grow its earnings by 13.6 percent year on year to P851 million.

“We expect PIZZA to be one of the main beneficiaries of the tax reform program as consumers with higher disposable income trade-up to full-service restaurants. Moreover, PIZZA’s plan to grow its domestic and international store footprint will allow it to take advantage of the strong growth of consumer spending,” it further said.

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