Stock Market Forbes ABN AMRO Business Roundup
For the trading week ended Friday 18th of June 1999Selling frenzy continues
Corporate results
A slow down in the local economy
Increase in interest ratesSelling frenzy continues -Trading continued to be at unexciting levels as turnover remained at an average Rs. 38.7Mn. throughout the week, registering a decline of 21% from last week. However foreign out flow declined by 68% to Rs. 25.3Mn, whilst activity levels from this segment remained at 34% of total turnover. The only healthy patch of trading in the week was on Wednesday, which registered a 0.98Mn. inflow and a well above average turnover of Rs. 67 Mn. This was mainly triggered by a foreign to foreign transaction on Aitken Spence, which contributed towards 71% of the day’s turnover. Nevertheless selling pressure persisted from all segments as benchmark ASPI was pushed 9.2 points lower to close at 516.3.
Corporate results - Amongst the corporate results released for the finical period ending March 99 DFCC, Cold Stores & Aitken Spence registered growth in profits whilst Richard Pieris Kotagala Plantations registered declines. However we reiterate our sell recommendation on Aitken Spence as we believe the stock to be overpriced, as it’s EV/EBITDA is at a 23% premium to both JKH & Hayleys. By the same yardstick Richard Pieris remains a buy despite its decline in profits as it’s still the cheapest amongst the conglomerates.
Flashnotes
A slow down in the local economy — Both exports & imports for 1Q99 registered declines by 9.4% & 1 18.9% respectively. Textiles; which constitute 50% of the exports, declined by 5.5% whilst contribution from the agricultural sector declined by 24.5%. On the imports side all main segments declined including a significant 7.8% loss whilst intermediary goods were down by 20.2%.
Annalists expect this downward trend to continue with exports & imports estimated to decline by 2.3% & 3.5% respectively. We base these estimates on an expected decline in Textile & garment exports mainly due to intensified competition from rival countries & from local competitors. Increased freight charges are expected to aggravate the problems faced by the industry. Further continued low commodity prices for Tea & Rubber are expected to lower the export contributions. However this slowdown is expected to be mirrored on imports driven by slower economic growth for 99, lower average prices for main commodities especially Crude Oil, lower than expected depreciation of Rupee against Indian Rupee & the free trade agreement with India allowing low cost imports.
Increase in interest rates - The 3, 6 & 12 months T-bill interest rates advanced marginally from 11.79%, 12.04% & 12.64% to 11.81%, 12.04 & 12.65%.
Bartleet's Weekly Market Commentary
• Dominated by regional disturbances and the downtrend seen in regional markets, the Colombo Bourse continued to slide further throughout the week. However, a similar trend of immediate reaction does not occur when the regional markets move up and the Colombo Bourse remains stagnant or experiences a gradual recovery. This stems from two problems i.e. (a.) lack of liquidity and (b.) heavy dependence on the foreign segment. Even the large domestic funds such as EPF have expressed concern over the liquidity problem, which we feel should be remedied immediately on the back of strong government intervention in listing large public enterprises namely Telecom, Air Lanka etc.
• The ASI lost 9.2 points to close at 516.3 while the blue chip index shed 16.9 points before closing the week at 821.3. Blue chips once again dipped significantly throughout the week with stocks such as NDB and DFCC loosing 14.2% and 10.8% WoW. Cold Stores, Dockyard and Nestle were also among the major losers for the week with prices declining by around 9.4%, 8.6% and 6.4% respectively WoW. Plantation shares dropped further down with stocks such as Maskeliya, Kegalle and Madulsima loosing significantly by around 19%, 13.5% and 10% respectively WoW. Market capitalization, which opened the week at Rs. 104.4 Bn was down Rs.1.6Bn to close at Rs.102.6Bn. Foreign selling once again exceeded purchases by Rs. 25Mn with sales and purchases accounting for 28% and 41% of week’s turnover respectively. With blue chips trading at bargain levels and the attractiveness of the market in terms of price earnings ratio and dividend yield, we foresee a strong downside protection and hence advice our investors to accumulate fundamentally sound stocks.
• Among the large parcels that changed hands during the week were Royal Ceramics 1,455,500 @ Rs. 14.50, Richard Pieris 260,200 Rs. 63.00, Aitken Spence 487,900 @ Rs.97.00, Bairaha Farms 373,900 @ Rs. 9.50, Lion Brewery 331,900 @ Rs. 24.50 and MLL 416,800 Rs. 15.50. The week also saw dividend announcements made by Shaw Wallace 15% (first & final), Tokyo Cement 32% (final) and a bonus announcement by Hayleys Exports in the form of one for eight.
• Given the shortfall of production in major tea producing and exporting countries i.e. India by 42% or 20.2Mn kg and Kenya by 25% or 36.2Mn kg during the first quarter of 1999, tea prices, which we feel have already seen the bottom, could take an upturn during the second half of 1999. A further slump in production in India and Kenya during the second and third quarters of 1999 could trigger a shortfall of supply in the world market. This would definitely turn in favour of Sri Lanka, who has already recorded a 22% or 18.12Mn kg growth in tea production during the first four months of the year. The effort to promote tea exports to Iraq, who was one time, the largest consumer of Ceylon tea, under the oil-for-food agreement, should further strengthen the prospects for tea.