Sri Lanka Equity Analytics

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Oct 24, 2010

Share market bear run only temporary : analysts


Analysing the Colombo share market which was down on some days last week, some analysts say that this rally was muted as profit taking emerged on fears of overregulation of the market, while others say that the unprecedented market boom warranted regulator intervention.

“Corrections or pockets of profit-taking occur from time to time in any bull market. Investors should look back and realize that there has never been a correction that has not proven to be a buying opportunity. Therefore, investors should grasp this opportunity to slowly collect fundamentally sound quality equities,” Milinda Ratnayaka, Analyst SMB Securities noted.

Some say that stock markets cannot be looked at daily- as on a daily basis there will be movements up or down, but ultimately company profits and dividend payments will drive the stock market.

“As for Sri Lanka, we have entered a new growth cycle. And we are at the beginning of this new positive cycle. There is more growth to come in terms of the Sri Lankan economy and this will also show in the profits of companies. Therefore, barring any unforeseen event, the Sri Lankan stock market will continue with its positive performance,” Prabodha Samarasekara, CEO NDB Aviva Wealth Management said.
He added that regulation is needed. If you are a long term, fundamentals driven investor, it will have no impact on the decisions on the trades,” he added.

Nikitha Tissera, Head of Research Sampath Securities said that although the market indices were flat it has seen heavy turnover. “It could indicate that the investors are collecting value stocks. Also, the upcoming budget may be one of the reasons that’s making the investors have a 'wait and see’ approach before buying at high prices.”

Another analyst said that the recent regulations will bring about disciplined to the market and reduce volatility. “The regulations are expected to bring in disciplined investment style. With future earnings growth expectations of at least 30% year on year for the next three years, market is expected to strongly rally in line with corporate earnings expectations,” she said, adding that to maintain in the long term a bull run expected at the share market, some sort of regulations are required.

Mano Nanayakkara, CEO Asia Securities said that careful oversight is necessary as the market is in unchartered territory. To err on the side of caution is preferable to being lax and having the innocent and the ignorant pay the price.

Courtesy - The Sunday Times
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Oct 21, 2010

Sri Lanka gas IPO seen attractive with rising demand


A share issue by Sri Lankan liquid petroleum gas supplier Laugfs Gas to raise 2.5 billion rupees is attractive given market growth as the economy recovers with the end of a war, its promoters said.

The initial public offer opens on November 04, 2010 with the minimum subscription set at 100 shares. The 22 percent stake is to be listed on the second board of the Colombo Stock Exchange.

The firm is offering 75 million voting shares at 23 rupees each and 52 million non-voting shares at 15 rupees each. The money will be used to expand the gas business and diversify into hotels and property and repay debt.

Deshan Pushparaja of Capital Alliance, one of the joint placement agents for the issue, said they forecast Laugfs will make a net profit of a billion rupees in the 2011 financial year with an estimated 2.75 rupees earnings per share fully diluted after the IPO.

Laugfs made a net profit margin of 9.45 percent in the 2009-10 financial year and net profit of 527 million rupees, up from a margin of 5.05 percent and a profit of 243 million rupees the year before, according to the prospectus.

The financial statements of the Laugfs group for the 2009-10 financial year have been qualified by auditors. This was with regard to deferred cost of sales, where the management has deviated from normal accounting rules, which resulted in an increase in the stated profits, according to the prospectus.

Laugfs has a 28 percent share of the total LPG market which it aims to increase to 50 percent in the next two years. Gas sales grew at a cumulative annual growth rate of 14.3 percent in the last five years to 47, 388 metric tonnes in 2009.

The prospectus attributed the growth to penetration of competitor market share, pricing strategy and gradual growth of the industry. However, the prospectus warned, price sensitivities and availability of substitutes have been the key concerns which may impact on Laugfs in future.

Pushparaja said accelerating economic growth will lead to a wealthier population and rising demand for LPG. Greater household income will enable lower income consumers to shift their cooking fuel from wood and kerosene to LPG. Only about a quarter of the population now use LP Gas.

Growth in industrial production and the tourism sector, which is booming after the end of the island's 30-year ethnic war in May 2009, is expected to drive demand for industrial gas. The end of the war opens up Sri Lanka's east and north to LPG distribution for household cooking. The company will use part of the IPO proceeds to expand its storage and distribution network.

Pushparaja said Laugfs is assured profit margins under a pricing formula guaranteeing a 30 percent margin on landed cost to the firm. Pricing is regulated by the Consumer Affairs Authority with the maximum retail price of a 12.5 kilo cylinder revised every two months based on information provided by suppliers.

The market price could drop sharply if the government lifts the "cost-plus 30 percent" LPG pricing rule. However, the pricing formula is under sanction of the supreme court and under the current duopoly environment with the only other player being Shell's local unit, price wars are unlikely, Pushparaja said.

Both players enjoyed good profit margins even before the price formula was introduced, he said. Laugfs gets 55 percent of its LPG requirement from the international market at spot prices and the balance 45 percent from the refinery owned by the state-run Ceylon Petroleum Corporation.

Laugfs currently has exclusive rights of procuring the entirety of LPG produced by the CPC refinery, which if ended, could raise the firm's costs resulting in a narrowing of profit margins. The supply deal with the CPC is also under an order of the Supreme Court and Laugfs also relies entirely on imports, with little impact on margins, during regular CPC refinery shutdowns for maintenance.

Courtesy - LBO
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Oct 18, 2010

Host of state entities to take IPO leap


The government is looking to sell stakes in state-owned entities in the near future through public share issues, according to officials. They said that after SriLankan Airlines Catering and Shell Gas goes public, Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), SriLankan Airlines, ITN and Sri Lanka Insurance Corporation (SLIC) will follow suit.

Media Minister Keheliya Rambukwella also confirmed this and told the Business Times that the government is favourably looking at selling stakes in these institutions. “The time is right (to list) and all indicators are pointing favourably at listing. The concept of the government at present is to ‘give to the people’ so that they will have a say,” he said, adding that such public participation in these entities will facilitate the people to voice their opinions (at Annual General Meetings).
A team of experts from the Treasury, the Central Bank and some financial consultants are working on the modalities of listing these entities. “They are planning the strategies taking into consideration the mood in the share market and the interest of the people,” he said.

Highly placed sources told the Business Times that many of these entities are debt ridden and that the government is discussing to list about 15 to 20% of each entity at the Colombo Stock Exchange to initially retire their debts and then streamline these entities.

“Listing brings in better corporate governance and better performance to these entities,” one source said. Minister Rambukwella added that the government is constantly realigning its strategy and will infuse private sector participation while keeping the people’s interest at heart when going for Initial Public Offerings.

Nishantha Wickremasinghe, Chairman SriLankan Airlines (SLA) told the Business Times that SriLankan Airlines is planning to divest a part of its fully owned catering unit through a public listing to raise around Rs 60 million. He said that SLA is planning to separate its MRO Department – Maintenance, Repairs and Overhaul - into another subsidiary. “We will form a separate firm at Mattala, Hambantota with a larger engineering facility,” he added, noting that this company too will be listed at a later date.

He said that SLA is also planning an aeronautical engineering academy to be formed in the same area to train technicians. “We can attract international students with such a facility and also retain local engineering students,” he noted. He added that this entity too will be listed in time to come. “After this we’ll consider an SLA listing,” he added. 

Courtesy - The Sunday Times


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