Banking Sector Valuation Guide

Some people are complaining about market is overvalued. But look at the actual facts. Colombo average PE is 12.75, bellow most developed markets. Our GDP growth is above 8, most developed countries GDP is below 1.5.
What we lack right now is only sentiments. Most shares are trading at all-time low valuations.

While making most of the trading opportunities, pick some valued shares for portfolio building.

* Seylan Bank NV is trading far below the asset value.
* Sampath bank is trading at PE of 6.5X lowest valuations in recent years
* Union Bank will make huge capital gain on part disposal of The Finance and Guarantee shares. (They are gaining a 500% return within just five months.)
* IFC & Commercial Bank structured a landmark US$ 65 mn. (Rs.7.5 bn) facility for financing SMEs in Sri Lanka.
* Within next two weeks two more commercial banks will announce similar facilities with several middle east funds.

IF WE ARE NOT INVESTING NOW, WHEN?

Very interesting.
Good work.
Really appreciate.
Thanks for sharing.

THank you.

Very good work.
thank you.

Need big inflows to buy Samp,comb,lfin,plc...
But problem who buys ??

well done brother

Thank you! Appreciate your effort.. Keep up your good work!
one of the best article i recently seen that make sense. I fed up seen junk and promotion posts which spam the market talk section these days.

Yes, as one member mentioned, problem is who buys?
what happened at CSE on past few years was people blindly chase behind the HNWI and buys whatever crap they buy which killed most of the fundamentally sound stocks such as NTB, SAMP, COMB etc. you mentioned. I hope this bad trend will change some day on future. it might be only a dream in this mafia trading era at CSE. but i love that dream

A very good work keep it up!!!

I appreciate your positive attitude towards the market and Sri Lankan economic growth.

Even i feel there is a high possibility of a Banks and Finance rally.

-The country is growing at 7-8%.
-Banks are going to bring in foreign money to support economic growth.
-Market valuations have improved and become attractive.
-FDI set to increase next year, with stabilisation of inflation, currency and interest rates.
-Tourists likely to exceed 1 million arrivals next year.
-More hotels opening up, Hambantota harbour beginning to move.
-Broker credit is likely to get extended, with removal of price bands, banks lending more for stocks, revamp of the SEC due soon. (Will dissipate the panic and fear to an extent)
-Infrastructure projects started years ago starting to become reality. eg: Expressway, Hambantota harbour, Katunayake expressway, Colombo harbour expansion, etc..
-Stable political environment.
-Etc Etc..

There are many more positive reasons, other than the SEC and broker issues, for our stocks to start the climb sooner or later. I too believe more correction may occur but this will not last long. One may miss the opportunity. Next few months will show us a direction.

I have posted more reasons for a brighter outlook at the following links if anyone is interested:

http://forum.srilankaequity.com/t13602-what-is-the-prevailing-market-pe-ratio

http://forum.srilankaequity.com/t13593-good-time-to-keep-an-eye-on-the-market

Cheers!

Good work friend, recently i am buying the banking shares from the persons who are willing to sell at the price i wanted and i see there are lot of sellers thanks to them as well

Good work.Thanks.
If SAMP trade at atleast minimum expected value I will be a winner.

@hariesha,
Thanks mate, you r really a time saver

Bump

thanking you

Thanks hariesha

Well done mate..This is really helpful to everyone.

Really good effort Hareisha..

Thank you! and I highly appreciate your effort.. Keep it up..

The BFI sector run is a long due one.. I'm just finding it difficult to cope with the emotions on what to buy

An analysis like this no wonder put the basket on the table to make the decision.. thanks again..

Well done.
Thanks harisha.
Very good analysis in the banking sector.
Deserve to be appreciated.
Hope we can expect on other sectors also in near future.
Advanced wishes.


Note:
Sorry to say about - most of the forum members.
It is shame usually around 390 visitors are visiting this forum.
Only 95 downloaded the files to study the analysis.
Less than 12 appreciation to harisha.
(which he deserves a lot)
Where are this forum members going towards?
Are most of them looking for gossip in this forum?
Wasting the time on gossip threads.
We need to appreciate and encourage these type of threads.

Keep it up. Thanks for the good work

Well done Hariesha....Nice Work..Keep it up ...

Well done Hariesha. Can you up load the unlocked file. So then we can use this sheet to analyse other shares as well.

Did you miss CDB

Thanks.

Nice work hariesha! Thanks!

Thanks mate. It really helpfull. Anyway I have few hunderds of SAMP bought at 205. Although it seems be a right decision I wonder the bottom is yet to come.

hariesha wrote:Some people are complaining about market is overvalued. But look at the actual facts.

You have got lot of encouraging words , “thank you’ s. ( for sharing your worksheet ) But few have commented on your informative ideas. I'll try.

“Colombo average PE is 12.75, bellow most developed markets. Our GDP growth is above 8, most developed countries GDP is below 1.5”

This statement , may be mathematically accurate, but is it possible compare PE of Colombo Market with that of a developed Country ,based on GDP growth rates alone ? .

“What we lack right now is only sentiments. Most shares are trading at all-time low valuations.............pick some valued shares for portfolio building. “

Judging by the sentiments of Forum participants , it is clear , that most of the people are very much optimistic . But it seems most of the existing investors are already tied up with a share portfolio (with diminishing value ) .So they are short of funds to invest in additional shares ( trading @ “ all time low valuations “). This is evidenced by the enthusiasm about lifting of Broker credit controls, arrival new SEC chairman ....etc.
What about people , Institutes, funds who have money to invest ? Why are they not investing now ?
I give below some reasons , which I presume they are considering ....

* Seylan Bank NV is trading far below the asset value.
Sure , this may be an attractive point. But carefully examine the adjustments , revaluations, provisions, write offs, made in Financial Statements of last two / three years , before accepting declared NV.
Also, when you look at the happenings at Seylan Bank in the recent past ( run on the bank, CB intervention, appointment of Govt directors not answerable to shareholders , change of shareholders, VRS of senior management, no .of LT cases of past employees, adjustments in financial statements ) , can you expect any rational investor to invest in Seylan Bank, of all the banks, for long term value ?

• Sampath bank is trading at PE of 6.5X lowest valuations in recent years
Certainly Current PE is unbelievably low , compared to the PE of 13.5 at the peak price of around 300/- in end Jan 2011. Even at that time some of us were of the view that Sampath PE is still attractive. However examine the decline of PE (trailing PE for last 4Q) and compare with the results of each quarter. PE -11 at the end of March qtr, PE -8.5 at the end of June Qtr. PE -7.5 at the end of Sep qtr.

So why people having money, is not buying ? May be, going by the trend , they will expect it to fall below 5, at the end of Dec qtr !!!.

• Union Bank will make huge capital gain on part disposal of The Finance and Guarantee shares. (They are gaining a 500% return within just five months.)
Encouraging news, but do you really think there will be buyers for F & G at that price ( for a former Ceylinco Group company ) ?
Also prospective investors will not forget, , Union bank started trading over 40/- at the opening day ,barely after 6 months price is around 20/-.

* IFC & Commercial Bank structured a landmark US$ 65 mn. (Rs.7.5 bn) facility for financing SMEs in Sri Lanka.
* Within next two weeks two more commercial banks will announce similar facilities with several middle east funds.

Definitely a boon for the banks.
However this type of funding will not result in increasing interest spread in lending. Also to accrue the benefit , bank has to disburse the funds to prospective SME’s. The success of SME sector depend mainly on medium/small scale industrial activities. Is this sector growing ? Are they viable ? How about past deleted ratio s ? Are their concerted effort from policy makers to uplift the sector ( compared to the hype in tourism sector) ? New investors, specially investment funds, will examine these aspects before commitments.
Actually , the constraint to lending ( to SME, large scale industries ) is not lack of funds in Banks. Just examine the balance sheets, and note how much money is invested in treasury /govt bonds . It’s lack of new / expansion projects, which in turn depend on level of economic activities of the Country and potential for growth. ( Which in turn is reflected in the level of activities of share market ? )