Bank/Fin Merger hype Warning

Gaja · 26 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 1:57 pm

Gaja

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AMF also having the similar issue isn't It?

Slstock · 27 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 2:06 pm

Slstock

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Well AMF is trading around Rs 350. NAV is around 126 , and EPS will be over Rs 25. So it is trading rather fairly compared to some. Public holding is only about 10% though.

Gaja wrote:AMF also having the similar issue isn't It?

Gaja · 28 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 2:20 pm

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Yes, also last year final divided and this time interim one also good, need to wait and see what they intend to do in the future

The Alchemist · 29 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 3:27 pm

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@slstock - timely post. hype is the right word. after a long time, brokers have a "merger" story to sell and the retail traders are speculating on a favourable outcome to all this. so far so good as many of the lower rung finance companies have gone up significantly and traders have been rewarded.

The thing to keep in mind is these combinations / mergers are like arranged marriages (almost by force ?) and not love marriages. this is been done mainly to protect deposit holders of the weaker institutions. so stronger institutions will have to absorb weaker institutions, by way of share swap or cash, and based on the nett assets principal. since many of the lower tier finance companies are trading at a premium to net assets, the shareholders of these may get a rude shock when & if these mergers take place.

also note that it is possible to pay a higher price than nett assets by recognising goodwill i.e. paying a higher amount for synergy, branch network, locations, new markets etc. In COCR case, the private placement is done at nearly 3 times NAV but at a relatively low P/E (7 times).

another possibility is that the stronger institutions paying a higher than nett assets amount via share swap / cash and are compensated by tax incentives by the central bank, for doing so.
in some instances like (TFC) for eg, with negative nett assets, goodwill maybe recognised or revaluation of real estate portfolio done and incentives offered to potential buyer.

it is no point paying a premium on net assets on weaker finance institutions unless their earnings growth or p/e multiple warrants it. paying a premium for a weak finance company trading at a high Price to Book ratio and high P/E multiple and hoping to gain in a merger with a stronger bank / finance company (through share swap or cash mandatory offer) may be wishful thinking or pure speculation.

ironically, some of the more fundamentally undervalued companies in this sector, i.e. the perceived stronger institutions, like CFIN, ALLI, CDB, LFIN, VFIN, PLC etc have not seen much movement (CDB maybe exception to the case).

This may also not be the best year for banks / finance companies due to declining interest rates and the fact that many locked onto fairly high borrowing rates via debentures, causing a mismatch in their borrowing / loan portfolios.

i am afraid a mini bubble in this sector is being / will be created, led by the retail speculative, broker herded crowd and will burst when expectations are not met in reality. this could negatively impact the overall market, as we have seen before.

Slstock · 30 Re: Bank/Fin Merger hype Warning Sun Feb 02, 2014 4:01 am

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I am still not sure who is behind the foreign established fund who wants to buy COCR ;-) . There is much rumors behind COCR and management. I won't mention such details as I don't know the truth.,

Anyway , like you said, it is okay for aquirer to pay multiple times NAV, if is it a solid company making healthy cash profits, trading at good PEs. Else some of these other shares are making runs to be over valued and will be left high and dry with need set of traders who buy high in trouble.

I am still wondering what will happen to SFS ( here is another shaky one , which I hinted above) if Pawnees ( not an Indian Tribe) default!! Even scared to look at their portfolio with massive amount of Loans given on Gold , and what will happen if people default. This merger might be a god send for them.

Sadly so far Category A companies , ( except COCR) which really deserves a run, has not increased in price so far. Some of them have room to double in price fundamentally but .....

Btw, I thought CB already said there will be Tax incentives for Aqcuirer companies.

Your observation on Debentures should be noted. Specially if small companies who gave debentures at high rates in bog amounts need to be very careful.

This merger has + and -. So be educated folks.

[quote="The Alchemist"].

The Alchemist wrote:@slstock - timely post. hype is the right word. after a long time, brokers have a "merger" story to sell and the retail traders are speculating on a favourable outcome to all this. so far so good as many of the lower rung finance companies have gone up significantly and traders have been rewarded.

The thing to keep in mind is these combinations / mergers are like arranged marriages (almost by force ?) and not love marriages. this is been done mainly to protect deposit holders of the weaker institutions. so stronger institutions will have to absorb weaker institutions, by way of share swap or cash, and based on the nett assets principal. since many of the lower tier finance companies are trading at a premium to net assets, the shareholders of these may get a rude shock when & if these mergers take place.

also note that it is possible to pay a higher price than nett assets by recognising goodwill i.e. paying a higher amount for synergy, branch network, locations, new markets etc. In COCR case, the private placement is done at nearly 3 times NAV but at a relatively low P/E (7 times).

another possibility is that the stronger institutions paying a higher than nett assets amount via share swap / cash and are compensated by tax incentives by the central bank, for doing so.
in some instances like (TFC) for eg, with negative nett assets, goodwill maybe recognised or revaluation of real estate portfolio done and incentives offered to potential buyer.

it is no point paying a premium on net assets on weaker finance institutions unless their earnings growth or p/e multiple warrants it. paying a premium for a weak finance company trading at a high Price to Book ratio and high P/E multiple and hoping to gain in a merger with a stronger bank / finance company (through share swap or cash mandatory offer) may be wishful thinking or pure speculation.

ironically, some of the more fundamentally undervalued companies in this sector, i.e. the perceived stronger institutions, like CFIN, ALLI, CDB, LFIN, VFIN, PLC etc have not seen much movement (CDB maybe exception to the case).

This may also not be the best year for banks / finance companies due to declining interest rates and the fact that many locked onto fairly high borrowing rates via debentures, causing a mismatch in their borrowing / loan portfolios.

i am afraid a mini bubble in this sector is being / will be created, led by the retail speculative, broker herded crowd and will burst when expectations are not met in reality. this could negatively impact the overall market, as we have seen before.

Slstock · 31 Re: Bank/Fin Merger hype Warning Mon Feb 03, 2014 1:44 pm

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AFSL now trading at premium values to intrinsic.

slrkman · 32 Re: Bank/Fin Merger hype Warning Fri Feb 07, 2014 6:16 pm

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Very true slstock

dhanurrox · 33 Re: Bank/Fin Merger hype Warning Fri Feb 07, 2014 7:28 pm

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Whatever market condition this BLI thing is going up.today hit 35 too.Why I sold early, the shares I bout 17-18 rupees??100% return missed.

KDDND · 34 Re: Bank/Fin Merger hype Warning Fri Feb 07, 2014 11:02 pm

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dhanurrox wrote:Whatever market condition this BLI thing is going up.today hit 35 too.Why I sold early, the shares I bout 17-18 rupees??100% return missed.

market going down...
BIM puth going up

Slstock · 35 Re: Bank/Fin Merger hype Warning Sun Feb 09, 2014 2:50 pm

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Interesting read/opinion as many facts are true I think.

"He strongly urged that the decision as to which banks or finance companies should merge should not be determined by the Central Bank or any other authority but by the institution and its shareholders."

more at

http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=97488

D.G.Dayaratne · 36 Re: Bank/Fin Merger hype Warning Sun Feb 09, 2014 5:33 pm

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Pl read the article of Eran w

It not a statement of Opposition M P. But real constructive

criticism by an independent Economist

But the problem is no one to give hearing

Civil society organization are very week

KDDND · 37 Re: Bank/Fin Merger hype Warning Sun Feb 09, 2014 9:32 pm

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Eran point of view is wise and good for strength vise for the country!

Slstock · 38 Re: Bank/Fin Merger hype Warning Mon Feb 10, 2014 10:32 am

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Hmm, illiquid BLI is Rs 40+ now while CDB.X is Rs 38.

BLI NAV about 14
CDB NAV is 60

When the times comes .. any share can have its day ;-)

jonta999 · 39 Re: Bank/Fin Merger hype Warning Tue Mar 11, 2014 1:55 pm

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oVER TO YOU gILL MART,

cAN yOU produce a GEM like this?

fairinvestor · 40 Re: Bank/Fin Merger hype Warning Tue Mar 11, 2014 4:01 pm

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Where have all the good ones gone, long time passing?
Where have all the good ones gone, long time ago?
Where have all the good ones gone?
----- have picked them everyone.
Oh, when will they ever learn?
Oh, when will they ever learn?

Aubrey Perera · 41 Re: Bank/Fin Merger hype Warning Fri Mar 21, 2014 3:14 pm

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signs of things to come I reckon , look out for the counters that are lagging behind. I wonder what the closed door disclosures are though eg. CFL ran today but we don't know what their plans are. I think if we get behind certain counters we can make some millions in the next few weeks. GL some games have also started with certain other counters eneter at the right time and exit at the right time Merry christmas everyone.

mdcpk1975 · 42 Re: Bank/Fin Merger hype Warning Fri Mar 21, 2014 3:58 pm

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VFIN, LFIN is yet to start the run. Could see little bit of collection last week...Compared to already moved up counters like CFL, TFIL, UBC, Etc ...better buy safe and sound shares like VFIN and LFIN

Aubrey Perera · 43 Re: Bank/Fin Merger hype Warning Mon Mar 24, 2014 3:08 pm

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I own TFIL and it might be small but it's financials are quite sound to me. They should have done well this quarter as well. Let's see.

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Bank/Fin Merger hype Warning

26 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 1:57 pm

Gaja

27 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 2:06 pm

Slstock

28 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 2:20 pm

Gaja

29 Re: Bank/Fin Merger hype Warning Sat Feb 01, 2014 3:27 pm

The Alchemist

30 Re: Bank/Fin Merger hype Warning Sun Feb 02, 2014 4:01 am

Slstock

31 Re: Bank/Fin Merger hype Warning Mon Feb 03, 2014 1:44 pm

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32 Re: Bank/Fin Merger hype Warning Fri Feb 07, 2014 6:16 pm

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dhanurrox

34 Re: Bank/Fin Merger hype Warning Fri Feb 07, 2014 11:02 pm

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37 Re: Bank/Fin Merger hype Warning Sun Feb 09, 2014 9:32 pm

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38 Re: Bank/Fin Merger hype Warning Mon Feb 10, 2014 10:32 am

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