Stock Market The Forbes ABN AMRO Business Roundup
For the trading week ended Friday 3rd of March 2000
— Indices lift on last day of trading
— Caltex — Earnings up 21% and marine market looking promising
— CTC — Earnings up 45% and good growth ahead
— Sampath — Earnings down 26% and asset quality deterioratingThe ASPI and MPI declined by 2.3% and 2.9% from last week to close at 535.9 and 875.4 respectively. However indices lifted slightly during Friday’s trading due to selective picking on badly sold-down blue chips. The overall level of activity during this week at SLRs 350m was a decent improvement from last week’s SLRs 270. Total level of net foreign sales were about Rs. 8m lower than last week although stocks like JKH, DFCC and NDB still took a hard beating earlier during the week. Despite possibility of further foreign selling in the near term, our outlook for the medium term remains positive given an improving economic forum coupled with the surge of liquidity the listing of SLT promises to bring. We also believe that foreign interest in neighbour India, should filter down in to the Colombo bourse on a 6-12 month horizon.
Corporate results continued to filter among which manufacturing companies did brilliantly while banks not so. Caltex better our own forecast by 5% to register SL Rs 659m, up 21% year on year for 1999. We think average US dollar base oil prices (BO) for the year would have been about 12-14% lower than the 1998 average unlike crude oil prices that have picked up by over 70%. Caltex is preparing to face the liberalisation of its industry in 2004 well in advance, by venturing into the lucrative marine lubricants market. Management said a few orders, have already been obtained for marine lubricants.
Ceylon Tobacco recorded SL Rs 1.15bn, up 45% for the year topping our own estimates by 11%. The excludes profit of SL Rs 458m from the sale of subsidiary CTC Eagle, which was distributed to shareholders as a special interim dividend during the year. Its return on capital is 60.1% — the highest among all companies in coverage from all sectors. CTC’s monopolistic hold on the inclastic market is still intact. This is evident by its ability to grow this year even on slower volumes after the industry took a hit on increased excise taxes, by passing this on to its consumers.
Richard Pieris’s net earnings for the 3Q00 grew by 14% mitigating 1H00 declines of 44% to 23% for the nine months. The recovery has come mainly from higher contributions from Maskeliya, Kegalle and Kelani Valley. The ‘little’ conglomerate has been the slowest to get off the ground among its larger peers in what has been a bad year for most, mainly due to its relatively higher exposure to rubber and rubber products. However, Earnings potential remains intact with rubber prices improving, and appreciating East Asian currencies restoring local competitiveness.
Sampath Bank registered a miserable performance for FY99 with net earnings declining by 26%. The bank has performed poorly in all areas with very slow income growth despite good asset expansion, significant increases in costs, particularly personnel costs, and a whopping 47% increase in provisioning for possible credit losses. Asset quality has deteriorated as there has been a significant increase in non-productive loans. Financial health and excellent potential that existed 15 months ago has clarly deminished. We have downgraded earnings and recommendation to a SELL.
Bartleet’s weekly market commentary
Both indices at the Colombo bourse continued to slide downwards during the week with the exception of Friday where there were gains. The ASPI lost a further 12.6 points (2.3%) for the week closing at 535.9 points, while the MPI lost another 25.7 points (2.9%) closing the week at 875.4 points. Equity Turnover maintained a consistent level throughout the week with the exception of Monday and Tuesday where the turnover was Rs. 44.2Mn. and Rs. 51.6Mn. respectively. The total Equity turnover for the week was Rs. 315.5Mn. up by 17% when compared to the previous weeks firgure of Rs. 269.07Mn. The Average Daily Turnover during the week was Rs. 63.1Mn. up from the previous weeks level of Rs. 53.8Mn. Foreigners continued to be net seller for yet another week totaling Rs. 101.8Mn. with foreign purchases and sales contributing Rs. 74.9Mn. (24%) and Rs. 176.8Mn. (56%) to total turnover. The Market Capitalisation witnessed a dip of Rs. 2.5Bn. closing the week at Rs. 106Bn. With many stocks trading at there lowest levels in recent times, we anticipate that investors would take advantage of these prices in the coming weeks.
In addition to large quantities of Eagle Insurance debentures changing hands during the week, large quantities of Hayleys, Ceylon Tobacco Company, Merchant Bank, Lanka Milk Food, HNB, Lanka Ventures, JKH, Aitken Spence, Maskeliya, Blue Diamonds, Caltex Lubricants, Millers, Vanik and DFCC shares also changed hands.
Debenture Issue Of Sri Lanka Telecom:
SLT with a credit rating of SLAA+ will issue 1,000,000 Unsecured - Redeemable - Five Year Debentures 2000 / 2005. These debentures will be open for subscription on the 13th March 2000 and in an event of an over subscription a further 500,000 debentures will be issued. The Par value of a debenture is Rs. One Thousand and the minimum subscription amount is Rs. Ten Thousand. The Debentures will consist of three different interest rates and payment options on a reducing balance basis.
1. Fixed interest of 14% p.a. payable every three months
2. Fixed interest of 14.5% p.a. payable every twelve months
3. Floating interest of 1.25% p.a. above the simple average of six month Weighted Average Treasury Bill rate with a floor of 13% and a cap of 16%, payable every six months. The Redemption will be in four equal annual instalments commencing 2 years from the allotment date (25th April 2000).