2GO and LBC: A Comparison

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When high valuations do not seem to matter

2Go Group, ₱44 billion logistics provider, has experienced an ongoing significant market price appreciation brought by interests from both the Sy-led SM Group and Uy-led Udenna.

Although early in the 2Go acquisition, Udenna’s complicated acquisition of 21% of 2Go was voided last month by the Philippine Competition Commission (PCC) while SM Group’s 34.5% ownership of 2Go remained steady.

The PCC’s decision to void Dennis Uy’s or Udenna’s transaction was because of non-notification.

Meanwhile, Udenna said it will challenge this nullification either by filing a Motion for Reconsideration with the PCC or through a Petition to the Court of Appeals.

This happening here is quite a messy event now that Dennis Uy, 2Go’s current President and CEO, has appeared to already have his hands dirty and has been prompt in fixing 2Go’s financials in both fiscal year’s 2015 and 2016.

This (financial adjustment/s) is crucial and can raise 2Go’s appearance as a credible investment for future shareholders.

Nonetheless, the bottom line here is both these business groups (SM and Udenna) definitely see some value in 2Go’s business.

As of September 2017, 2Go reported a 15% rise in revenue and a contrasting 84% drop in profits.

2Go stated that the profit reduction was primarily due to:

“..recognition of non-recurring restatement of adjustments for provision for bad debts and inventory and related party adjustments totaling ₱207.2 million, and an increase in fuel prices (price variance of ₱420 million).”

Excluding these adjustments, profits still fell 81%.

The company also had a book value of ₱4 billion and ₱3.9 billion in debt. 2Go also had ₱2.1 billion in cash.

A similar company–LBC Express, meanwhile, was recently valued at less than half of 2Go’s ₱44 billion market price.

In the same period as 2Go, LBC reported good 16% rise in revenue and 17% rise in profits.

LBC also had a book value of ₱2.4 billion and ₱1.19 billion in debt. The company also had ₱3.7 billion in cash.

As of this time of writing (10:30 pm CST 3/10/2018), 2Go has a current price-book valuation of 11.2x compared to LBC’s 8.8x.

Looking at these figures, investors may not have so much choice on where to get exposure in this growing logistics business in the Philippines.

2Go claimed to be the current largest, premier logistics provider in the Philippines and has market shares of 38% in the country’s freight and 90% in the passage businesses.

Contrary to 2Go’s market leadership, LBC considered itself having a ‘still relatively small’ market share compared to 2Go and other companies (DHL, FedEx, and UPS).

2Go does seem to have the wherewithal to go through the ongoing turmoil while LBC is still playing catchup.

At more than 10x its book value, 2Go investors are already paying a high price on the troubled turnaround.

Disclosure: No shares in any of the companies mentioned.

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