NOW Corporation is Still Overvalued


A look at recent NOW financial figures

NOW Corporation, ₱17.9 billion Makati City-based telecommunications, media, and technology company, recently clarified that it is indeed participating in either a consortium to become the third major telecom player.

In addition, the company plans to raise between ₱500 million to ₱1 billion through preferred share issuance.

An earlier article: Read This Before You Consider Buying NOW’s Preferred Shares 

According to the blog, the proceeds will be used to partly fund the Fiber-In-The-Air broadband services and for corporate purposes this 2018.

Assuming NOW had successfully raised ₱1 billion strictly through a ₱100/preferred shared, this would entail that it issued additional 10 million shares resulting to a total share count of 1.53 billion.

As a result, this sort of does not dilute the current NOW shareholders.

There seems to be no dividend rate that was mentioned with the preferred shares, but the shares carry a warrant (right but not obligation) for its holders to convert at a price of ₱20/share between 3rd and 4th year. As of 2/18/2018 9:00 PM CST at ₱11.80.

Meanwhile, NOW reported an impressive 120% rise in its revenue and a 40% increase in profits in its nine months of operations that ended in September. The increase, in the third quarter alone, was due to the significant increase in service revenue (86% of NOW’s total revenue).

NOW also had a book value of ₱1.35 billion and minimal debt.

In the past three years (2014-2016), NOW raised ₱120 million in financing activities and generated losses of ₱82 million in free cash.

**NOW, for some reason, just experienced a nearly 18% drop in share price at the time of this writing.

At its current market capitalization of ₱17.9 billion, NOW has a price-book value of 13x. This multiple just indicated that NOW is very much overvalued compared to its industry multiple of 4x.

Not to completely reject NOW as a possible investment as it has just started to provide services to residential customers. In particular, the company stated that it activated its first residential services in Corinthian Gardens in Quezon City.

This serves to be promising together with its plans to become a major third telecom player.

Disclosure: No shares in NOW Corporation.

*market capitalization was updated to ₱17.9 billion from ₱21 billion as NOW’s share price has changed drastically downward at the time of writing.