D.M. Wenceslao and Associates Incorporated Initial Public Offering
(10 pages of text)
On June 11, 2018, Jake Veluz, portfolio manager at BDO Asset Management had to decide whether or not to invest in the initial public offering (IPO) of D.M. Wenceslao and Associates (DMW), a Philippine-based integrated property developer. The IPO price of DMW was reduced from ₱22.90 to ₱12 because of deteriorating stock market conditions. There is substantial concentration risk because most of the company’s land is in a single location and it is subject to long-term competitive pressures. However, DMW also has good prospects for future growth and capital appreciation in real estate rentals and development. Veluz had to prepare an internal memo to explain the merits, risks, and fair valuation of a possible investment in the DMW IPO in the context of weak stock market conditions.
This case is designed for graduate–level financial management courses, where it can be used to teach about the valuation process. The case can also be used as an introduction to the IPO process during an investment banking elective. By working through the case and assignment questions, students will:
- Assess the attractiveness of the real estate industry in the Philippines.
- Describe market conditions and explain the various features of the IPO, such as the use of primary and secondary shares and the overallotment option.
- Estimate the fair value price of a stock by applying the discounted cash flow method and the capital asset pricing model, as well as determining the reduced market valuation of land reserves.
- Compare fair value price to IPO price to help decide whether to buy the stock.
- Use the comparable firm multiples method and compare to the IPO price.
Philippines, Large, 2018
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