A sharp downgrade from First Metro Securities brings to the fore a host of questions concerning Ayala Land’s slowing residential business, rising debt maturities, and negative free cash flow. But does dealing with a difficult property cycle and the threat of MSCI exclusion truly justify treating one of the Philippines’ premier real estate franchises as a structurally impaired business?
My forensic read of Ayala Land’s financials is that the market may be confusing cyclical headwinds with permanent decline—and in doing so, may be undervaluing the long-term earning power of the country’s largest property developer.
Markets tend to get most optimistic near the top of a cycle and most pessimistic near the bottom. I have learned this through nearly three decades of being a financial writer and an investor.
First Metro Securities’ decision to slash its target price on Ayala Land Inc. by nearly 45% and downgrade the stock to “hold” differs from my forensic read. The report does raise legitimate concerns about slowing residential sales, debt maturities, negative free cash flow, and the possibility of removal from the MSCI Philippines Standard Index. Pencil pushing on the same numbers gives me a different conclusion.
