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Term Paper
Report
Introduction to
the company
Del Monte Pacific Limited is a global food and
beverage company that provides high-quality,
healthy products and is co-owned by NutriAsia
Pacific Ltd.

It is listed on the Mainboards of the Singapore

Exchange Securities Trading Limited and the
Philippine Stock Exchange.
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History of Del Monte Pacific Limited (DMPL)

1920s 1970s 2000s 2010s

Del Monte Pacific, the Del Monte expanded its NutriAsia Pacific Limited DMPL acquired Del Monte

parent company, was operations to include acquired a majority stake Corporation's consumer
banana-growing for in Del Monte Pacific Ltd. food business in the US.
founded in 1926. The
export in the Davao and (DMPL), which was listed This acquisition reunited
company originated DMPL with its founding
Misamis provinces, and on the Singapore
in the USA more than Exchange at the time parent and brought its
shortly after, The Bugo,
100 years ago. Cagayan De Oro, and and shortly after the products directly into the
world’s largest consumer
Main Office Building Philippine Stock
market.
were opened. Exchange.
Products
Healthy Beverages and Snacks
100% juices
Juice drinks
Milk
Biscuits
Convenience Cooking
Tomato sauce
Spaghetti sauce
Condiments
Meal mixes
Pasta
Packaged Fruits
Pineapple
Mixed fruit
Additional Products
Canned and fresh pineapples
Canned beans
Pineapple concentrate
Tropical mixed fruit
Tomato-based products
 Food and Beverage Industry
Key Players
Market Share
Del Monte Pacific Limited is significant in the
The Philippine food and beverage industry
Philippines' food and beverage sector. It competes
significantly contributes to the economy, with a
with prominent firms, including Century Pacific
projected revenue of around US$35 billion in
Food, Axelum Resources Corp, and Monde Nissin
Corporation. 2022.

Company Performance Recent Developments

Despite a decline in operations, the industry maintains The Philippine food and beverage industry is
a positive outlook for the future by focusing on cost growing and innovating with the rise of online food
reduction and productivity enhancement in the retail, the recovery of the food service industry,
Philippines. and new investment opportunities.
Types of Bonds Issued & Outstanding
Unsecured Bonds (1) Unsecured Bonds (2)

Capital Structure 2020 2021 2022 2020 2021 2022

Principal (in millions) nil PHP6,478,460 PHP6,478,460 nil USD$90,000 USD$90,000

Outstanding Balance nil 4.63% 0.30% nil USD$90,000 USD$90,000

3-year: 3.4840% 3-year: 3.4840%

Interest Rate nil nil 3.75% 3.75%
5-year: 3.7563% 5-year: 3.7563%

Year of Maturity nil 2023/2025 2023/2025 nil 2024 2024

Quarterly interest Quarterly interest Semi-annual

Semi-annual interest
payments; and principal payments; and principal interest payments
Payment Terms nil nil payments and principal on
on maturity date on maturity date and principal on
maturity date
maturity date

Interest Paid nil PHP183,984 PHP183,984 nil nil nil

Types of Bonds Issued & Covenant Analysis
Del Monte Pacific Limited recently
issued two classes of bonds with
fixed interest rates to pay off loans
and preferred shareholders. This
move aligns with the company's
financial objectives, diversifies its
capital structure, and enhances its
capacity to pursue strategic
initiatives.
Based on the financial table of Del Monte
Pacific Limited's bond portfolio,
Bondholders require:
A debt service coverage ratio of 1.2
ensures that operating income
exceeds debt payments.
Debt covenants limit the Debt-to-
Equity ratio to 2.5, reducing
insolvency risks and protecting
bondholders' interests.
Violations of these covenants can impact
credit ratings.
General Stock Information
(for years 2020 - 2022)
Ordinary Preferred
2020 2021 2022 2020 2021 2022

Par Value 1 PHP 1 PHP 1 PHP 1 USD 1 USD 1 USD

Number of Shares
1944 1944 1944 30 30 10
Outstanding (in millions)

Authorized (in millions) 3,000 3,000 3,000 600 600 600

General Points:
The number of issued and outstanding ordinary shares did not change; the company did not issue
additional common stock after 2020.
Preferred shares saw a 20,000,000 decrease in 2022, attributable to DMPL’s redemption of
20,000,000 shares on April 7, 2022.
Authorized shares remained sufficient; no change within the years elapsed.
General Stock Information
(for years 2020 - 2022)

! Important to Note

The status of DMPL’s preferred stocks in the Philippine Stock

Exchange is currently set to “Suspended” as of November 29, 2023,
and is NOT CURRENTLY TRADING.
Yearly Stock Prices
(for years 2020 - 2022)

General Points for 2020:

DMPL’s stock price was affected by the
COVID-19 pandemic, disruptions in the
supply chain, and reduced demand for
DMPL products.
DMPL announced a partnership with a
leading food and beverage company to
develop a new snack— which
positively affected the stock price as
DMPL expanded its product offerings
and entered new markets.
Yearly Stock Prices
(for years 2020 - 2022)

General Points for 2021:

The stock price was affected by
announcing a rights issue to raise
capital for debt reduction and working
capital.
Significant recovery of stock price due
to eased COVID restrictions, followed
by its common economic effects.
.
Yearly Stock Prices
(for years 2020 - 2022)

General Points for 2022:

Price growth flattened out compared
to the past year.
Rising inflation and supply chain
challenges could have put downward
pressure on DMPH’s stock price.
These factors could have increased
costs and reduced profitability.
Yearly Stock Prices
(for years 2020 - 2022)

Overall:
Looking at a yearly basis, the upward
trend in stock price is encouraging.
However, the volatility in the stock
price highlights the need to monitor
macroeconomic factors and adapt its
strategies accordingly.
 Succeeding Monthly Stock Prices
(January 2023 - November 29, 2023)

The stock market as a whole was

volatile in 2023.
Potential Factors:
political uncertainty,
trade tensions,
mild pandemic resurgence,
rising costs, and
increased competition
In March 2023, DMPL announced a
rise in selling prices on its
products due to rising costs, lower
margins, and reduced profitability
and attractiveness to investors.
 Stock Price Valuation
(using November 29, 2023 assumptions)

Expected Rate of Return Using CAPM

Philippine Treasury
Risk-free Rate 6.31%
Bond Rates
Market Rate 7.82%
Business Websites
Beta Coefficient 0.36
Expected Rate of Return 6.85%

Growth Rate Using Dividend Payout and ROE

Dividend Payout 6.20%
DMPL 2022
Return on Equity 17.60% Financial Report
Growth Rate 1.09%
 Stock Price Valuation
(using November 29, 2023 assumptions)
Forecasted Stock Price Using
Constant Growth Method
2022 Dividend per
0.0120
Share (USD)
Expected Dividend per
0.0121
Share for 2023 (USD)
Intrinsic Value of
0.2105
Common Stock (USD)
USD to PHP Closing Rate
55.4375
(November 29, 2023)
Intrinsic Value of Intrinsic value is significantly greater than the stock price by
11.6693 4.4693 or 62.07%, indicating undervaluation.
Common Stock (PHP)
The state of undervaluation could entice investors to invest
more in DMPL stocks, theoretically indicating a bargain from
their perspective.
Opportunity cost is on the firm's side in the sense that
potential income is lost due to the undervaluation.
Weighted Average Cost of Capital
Capital Structure COC MV Wt. WACC

Long-Term Debt 3.88% 71.44% 2.77%

Preferred Stock 6.40% 4.63% 0.30%

7.98%
Common Equity 20.51% 23.93% 4.91%

Total 100% 7.98%

DMPL must achieve a minimum rate of return of 7.98% to meet the expectations of debt and equity
investors while sustaining/enhancing the market value of its stocks. With a capital structure
predominantly driven by debt and its lower WACC, DMPL strategically employs debt for cost-effective
capital acquisition. In contrast, preferred stock holds an intermediate position with a higher cost than debt
but more down than common equity. The cost of common equity, contributing the highest percentage to
the WACC, underscores the risks and potential returns associated with ownership, aligning with the
principle that equity investors demand higher returns due to increased risk.
Equity Value vs. Market Capitalization
(in USD)

The computed Equity Value is slightly higher by 16,780,962.38 USD or approximately 3.17%.
Indicates that the stock prices of DMPL are slightly underpriced.
Similar to the implication on the undervaluation of stocks, this could entice potential and existing
investors to invest more in DMPL stocks because what they would pay for is lower than that of the
value of the firm, theoretically indicating a bargain.
On the other hand, leads to opportunity costs on the side of the firm in the sense that potential
income is lost due to the undervaluation.
WACC vs ROIC

DMPL is able to generate more returns than its cost at a difference of 2.07%.
Indicates that the investment scheme is able to create more value for the company.
However, it must be noted that a higher ROIC, as compared to the WACC, does not guarantee that
the firm already uses the optimal capital structure or that they are already using the optimal
investment portfolio.
Capital Structure Analysis
Capital Structure 2022 2021 2020 2022
Long-Term Debt 72.59% 64.73% 37.51%
2021
Preferred Stock 5.86% 17.31% 30.64%

Common Equity 21.55% 17.96% 31.85% 2020

Total 100% 100% 100%

Significant increases in the weight of Long-term debt can be observed, as opposed to

the decreases in Common Equity and Preference Share weights.
This is attributable to the issuance of bonds in both 2021 and 2022.
On the contrary, no issuance of stocks occurred after 2020.
Changes in Common Equity weights are only attributed to changes in Retained Earnings.
Market Average Capital Structure
Capital Structure Averages

Long-Term Debt 32.87%

Preferred Stock 65.88%

Common Equity 1.25%

Total 100%

The most glaring difference between the two capital structures is between the percentage of long-term debt
used by Del Monte as compared to the market averages and the significant difference it has to how the
market chooses Common Equity as its primary source of asset funding. Using this, we can relate it to the
Trade-off Theory wherein Del Monte is likely valuing the tax savings contributed by a high debt ratio
compared to the market average. Using signaling theory, we can infer that Del Monte’s stock is underpriced.
Dividend Policy
Cash Dividends Issued for Preference Shareholders over the three-year period

Fixed Rate for A-1 Shares = 6.625% per annum or equivalent to $0.33125 for the fiscal year ending 2021.
Fixed Rate for A-2 Shares = 6.5% per annum or equivalent to $0.325 for the fiscal year ending 2021.

Preference Shares 2022 2021 2020

A-1 Preference Shares 13,250.00

13,250.00 13,250.00

A-2 Preference
6,500.00
Shares 6,500.00 6,500.00

Total
19,750.00 19,750.00 19,750.00
Preference Shares
Dividend Policy
Cash Dividends Issued for Ordinary Shareholders over the three-year period

The Group distributes a minimum of 33% of full-year profit as cash dividends to ordinary shares, with
dividends of $0.0120, $0.0154, and $0.0052 paid for fiscal years 2021, 2020, and 2019.

Preference Shares 2022 2021 2020

A-1 Preference Shares 13,250.00

13,250.00 13,250.00

A-2 Preference
6,500.00
Shares 6,500.00 6,500.00

Total
19,750.00 19,750.00 19,750.00
Preference Shares
Dividend Policy
Dividends Policy Adopted and Explained using Financial Theories

The Group upholds a constant payout-ratio policy about payout to ordinary shareholders.

The rate is always consistent as the Group always declares and pays dividends equivalent to 33% of
the Group's full-year profit, no matter the circumstances.

Advantages Disadvantages
The policy of an agreed percentage of the full-year Shareholders may get to experience the volatility
profit as the basis of the cash dividends minimizes of company earnings.
agency problems as managers cannot put their An increase in dividends may not be fast and
personal interests ahead of the shareholders. exponential.
Dividend Policy
Dividends Policy Adopted and Explained using Financial Theories

The group upholds a “Step-up Date” Policy (Policy set by DMPL) for dividends issued to Preference
Shareholders.

The policy states: “If preference shares are not redeemed by the step-up date (fifth anniversary from
the issue date), the dividend rate for preference shareholders shall be adjusted to the sum of the 10-
year U.S. Treasury Bond rate (prevailing as of the Step Up Date) plus initial spread plus margin of
2.50% per annum (the “Step Up Rate”). The initial spread shall be 4.605% and 4.44% per annum for
Series A-1 and A-2 preference shares, respectively. However, if the initial dividend rate is higher than
the applicable Step Up Rate, there shall be no adjustment to the dividend rate, and the initial dividend
rate shall continue to be the dividend rate. “

This can be related to the Agency Cost Theory as the Group always does its best to meet the dividend
payout commitment to its preference shareholders even in the event of the Group redeeming its preference
shares (the initial dividend rate will still always be chosen even if the “step-up rate” is lower).
Stock Price Maximization Approach
Capital Structure S1 S2 S3

Levered Beta 1.66 0.70 0.93

Risk-Free Rate 6.31% 6.31% 6.31%

Market Rate 7.82% 7.82% 7.82%

Cost of Equity 8.81% 7.36% 7.71

The Tax Rate was calculated from the company’s Income Statement as of 2022. The risk-free rate is based
on the Philippines’ 10-year Government Bond average retrieved as of the making of this analysis from
WorldGovernmentBonds. The market rate used was retrieved from the stock market return as cited from
TheGlobalEconomy, which was also retrieved as of the making of this analysis.
Stock Price Maximization Approach
The following scenarios using the historical growth rate of 2021 and 2022 to remain conservative of
2020's pandemic event created the following results for the years 2021 and 2022:

Capital Structure S1 S2 S3

Cost of Equity 8.81% 7.36% 7.71%

EPS 0.0570 0.0369 0.0369

Stock Price 0.646 0.501 0.479

Scenario 1 has the highest basic EPS since there were no changes in the ordinary equity of this
scenario from the Group's existing equity, therefore maximizing the stock valuation for the entity.
Scenario 2 and 3 issues all currently authorized ordinary shares and were diluted.

By these accounts, the entity should continue to lean towards its current debt-focused capital structure.
At the same time, caution does need to be exercised to ensure the entity does not approach default.
 Overall Analysis of Key Metrics
To combat the volatility of stock prices due to both internal and external factors, financial
covenants were put into place.

Both Stock Intrinsic Value and Equity Value comparisons to market values of stock and equity,
respectively, indicate stock price undervaluation, enticing investors to buy at a bargain but
resulting in opportunity cost for the firm due to lost potential income.

DMPL's capital structure is predominantly debt-driven as seen in its WACC, reflecting the
company's preference for cost-effective capital acquisition. This debt-heavy structure, however,
necessitates a minimum rate of return of 7.98% to meet the expectations of debt and equity
investors

DMPL's return on invested capital (ROIC) of 10.09% exceeds its WACC of 7.98%, indicating that
the company's investments are generating more returns than its cost of capital.

The company's capital structure deviates from market averages, with a higher percentage of
long-term debt. This deviation suggests that DMPL values the tax savings associated with a high
debt ratio, aligning with the Trade-off Theory.

DMPL's dividend policy follows a constant payout-ratio approach, distributing 33% of its full-year
profit to ordinary shareholders. This policy minimizes agency problems but can lead to earnings
volatility and slow dividend growth.
 Conclusion
Del Monte Pacific Limited demonstrates
strong financial management through
strategic bond issuance, capital structure
diversification, and adherence to investor
covenants. Despite undervaluation and
challenges in 2022, the company's
upward trend, effective investments, and
cost-effective capital structure suggest
investor confidence in its long-term
prospects.
Recommendation
Del Monte Pacific Limited should address its
undervaluation through improved investor
relations as this will increase awareness of the
true intrinsic value of the stock and may
increase trading, maintain its cost-effective
debt-focused capital structure while managing
debt levels through its adherence to covenants
set by Bondholders, continue investing in
projects with high returns exceeding the cost of
capital, review its dividend policy to balance
shareholder rewards and growth and strengthen
risk management strategies to mitigate market
volatility.