Conglomerate price e.g. VONE

hasi17 · 1 Conglomerate price e.g. VONE Sun Dec 18, 2011 5:17 pm

hasi17

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VONE price multiple is nearly twice as the subsidiaries it owns. Unlike other conglomerates it's much clear as it's just a container.
Other diversifieds must be much much worse.

Shouldn't the conglomerate priced lower than the parts?
Why would somebody buy plate, fork and spoon altogether at a higher price when they can buy each separate item at half the price? Shouldn't it be the other way? That is bundle should be cheaper than the separate items? But in this case the conglomerate price is much higher.

lamaya · 2 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 6:59 pm

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very true.....!!!!

soileconomy · 3 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 7:15 pm

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One reason is big people are holding it.Free float may less.
Connected to controlling interest.
Another one is ,it is diversified.It does not need to depend on one business.
Sometimes some sectors do not do properly.
That is why as a sector diversified business entities have a fairly higher PE ratio compared to average PE ratio.
They may take over some companies .Then PEG will improve.

WildBear · 4 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 7:27 pm

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Diversified companies will further diversify and end up with a higher shareholder value. This year VONE acquired Orit Garments, Delmage group and and a portion of Haylies. SHL bought Asian Alliance and a stake of NDB.

hasi17 · 5 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 7:40 pm

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I think my example is too simple for the context.

The fact is even after acquiring more and more companies or becoming fat doesn't make its price multiple higher. It should remain the same.
When you buy individual companies you can select the ones you want and skip most of the junk, and you get the benefits directly as dividends, rights, reserves, so have full control of everything. If you look at the diversified most of the time only one or two segments perform well and other eat the profits from the profitable parts.
When you buy a conglomerate there's 'operational costs, administrative costs' of the conglomerate on top of the earnings those individual companies make. Also you don't have direct control of any part benefits. You're going through an extra layer of inefficiency.
So I think this inefficiency should have a lower value than the individual parts.
As far as I know PE ratios are low in other countries. I think in Sri Lanka the reason diversified were bought at a higher price was that those days in the war times everybody liked the big companies which everybody thought would be immune to the unstable conditions. But now that the war is no more, that risky is not there.

soileconomy · 6 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 7:54 pm

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No of shares matters a lot (liquidity )
Normally conglomerates have more no of shares.
liquidity normally attracts more foreigners in a market like SL.
Steady of the business itself is a + point for investing rather than fluctuation of
profits.
If one person invested in SUGA (Pelwatte ) his full portfolio instead of DIST (Distillaries ) what would have been his fate?

Rapaport · 7 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 8:14 pm

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VONE also contains some parts which are not listed and currently not making an impact to its profits. It is making a hotel, invested in Hayleys and an apparel factory if im not mistaken.

It maybe priced higher due to it potential in the future as a holding company.

Cheers!

Kumar · 8 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 9:40 pm

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Rapaport wrote:VONE also contains some parts which are not listed and currently not making an impact to its profits. It is making a hotel, invested in Hayleys and an apparel factory if im not mistaken.

It maybe priced higher due to it potential in the future as a holding company.

Cheers!

You got a reason.
Good point.

Rajaraam · 9 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 10:17 pm

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Rapaport wrote:VONE also contains some parts which are not listed and currently not making an impact to its profits. It is making a hotel, invested in Hayleys and an apparel factory if im not mistaken.

It maybe priced higher due to it potential in the future as a holding company.

Cheers!

Corect. We can see price appriciation of Carson,JKH ,SPENCE Hayleys etc. Within 3-4 years one can expect a good Capital gain on investment made for VONE.

hasi17 · 10 Re: Conglomerate price e.g. VONE Sun Dec 18, 2011 11:01 pm

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Rapaport wrote:VONE also contains some parts which are not listed and currently not making an impact to its profits. It is making a hotel, invested in Hayleys and an apparel factory if im not mistaken.

It maybe priced higher due to it potential in the future as a holding company.

Cheers!

Today I checked the leisure sector contribution of one company to the bottom line. It was 0.1% although they promoted their hotels and the leisure sector. Smile

So beware of when people say they *will* do great in hotels or some different business from the core business. They are always optimistic. But check the real contribution to the final numbers. Most probably its insignificant.
If you take VONE container the contents are very clear. Because there isn't much in it. Only big contribution other than the listed companies is the Delmege. But if it's not listed how do you value it. I guess it should be its fair value as it cannot be valued at any kind of market price.
The thing is in the future all these companies would do well, there's nothing wrong with any of the companies. It's the current price which is questionable.

CSE.SAS · 11 Re: Conglomerate price e.g. VONE Mon Dec 19, 2011 2:39 am

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Rapaport wrote:VONE also contains some parts which are not listed and currently not making an impact to its profits. It is making a hotel, invested in Hayleys and an apparel factory if im not mistaken.

It maybe priced higher due to it potential in the future as a holding company.

Cheers!

Very good point Rapaport...