Undervalued stocks

aj · 1 Undervalued stocks Tue Feb 21, 2012 9:33 pm

aj

Assistant Vice President - Equity Analytics

Posts : 766
Equity Stars : 5442
Reputation : 45
Join date : 2011-11-25

How come many of the last quarter results growth are in the red / company profits have gone down or barely gone past 10%. (I believe 10 - 20% profit growth for a company is below average specially for emerging, frontier, massive profit, growth, rich, fast growing tourism, manufacturing and so many other words economy) I guess overall total company profits must have gone down around 10% this quarter when this is the best quarter with tourism and much talked MAHAA season.

anubis · 2 Re: Undervalued stocks Wed Feb 22, 2012 1:57 pm

anubis

Senior Manager - Equity Analytics

Posts : 474
Equity Stars : 5396
Reputation : 31
Join date : 2011-03-21

IMHO, Tourism is over-hyped. I don't think the current prices are justified at all.

But have a look at the last quarter reports for JKH, UML, PABC (and many banks to come), RICH. You'll see that their current prices are attractive.

I'm not bullish or bearish, just reporting what I can observe.

Cheers!

aj · 3 Re: Undervalued stocks Wed Feb 22, 2012 2:15 pm

aj

Assistant Vice President - Equity Analytics

Posts : 766
Equity Stars : 5442
Reputation : 45
Join date : 2011-11-25

JKH profits will go down as the tourist season comes to an end in the coming quarters. JKH is a hotel company. Their business is transport and hotels. Others are insignificant.

RICH profits have come down around 10% this quarter as far as I can remember. Their PE ratio is down because they sold the insurance firm or something totally around six months ago.

anubis · 4 Re: Undervalued stocks Wed Feb 22, 2012 2:35 pm

anubis

Senior Manager - Equity Analytics

Posts : 474
Equity Stars : 5396
Reputation : 31
Join date : 2011-03-21

@aj: please refer following reports:

1) income statement for 3 months ended 30/06/2011: http://www.cse.lk/cmt/upload_report_file/509_1313140039919.pdf

2) income statement for 3 months ended 30/09/2011:
http://www.cse.lk/cmt/upload_report_file/509_1321263935886.pdf

3) income statement for 3 months ended 31/12/2011:
http://www.cse.lk/cmt/upload_report_file/509_1329217823374.pdf

I think the one-off gain you are referring to is the "Other operating income" field which is very high in report number 2) above.

Let's take that off. But have a look at the gross profits, they have increased in the last quarter.

In any case, for the last two quarters let's assume an EPS of 0.30 (I haven't done the exact calculation but I suppose reducing an EPS of 0.64 to 0.30 would account for the one-off gain).

So, the estimated EPS = 0.30 * 4 = 1.2, P/E = 6.5 / 1.2 = 5.4

(Note that I used 6.5 because that's the price I paid for this share Wink

)

Now, my estimate is not very accurate because the EPS for the quarter 31/03/2011 is 0.01. But I think this was due to some plantations issue and I think it's safe to assume it will not repeat again and again.

I can do a more detailed calculation if you prefer, but I think 6.5 Rs per share is very much attractive for RICH.

Cheers!