Stock Screening - Identified Valuation Gaps

Hi All,
The below is my calculation and identification of Financial sector stocks trading at a discount to the respective industries/market. I could see lot of investment grade counters in terms of valuation gaps. Hope this will be useful for you to take some logical decisions. The numbers are based on latest published financials and PE is calculated based on 4Q trailing EPS of each company. Gaps highlighted in dark green are trading at the deepest discount prices whereas green highlighted ones also have mid term price appreciation potentials.

For me CDB & LB Finance are super. Also stocks like Vallible Financee, Sampath, Alliance Finance, LOLC, Nation Lanka & Peoples Leasing have great potential for price gains.
Thanks

As at 16th Aug 16	PE	Discount/(Primium)  to Industry	Discount/(Premium)  to Market
Abans Finance	20.6	-158%	-51%
AIA Insurance	23.3	-191%	-71%
Alliance Finance	5.9	26%	57%
Amana Bank	31.9	-299%	-135%
Arpico Finance	4.3	46%	68%
Asia Asset	6.9	14%	49%
Asian Alliance	9.4	-18%	31%
Bimputh Finance	10.9	-36%	20%
Central Finance	12.1	-51%	11%
Ceylinco Insurance	8.6	-8%	37%
Chilaw Finance	19.9	-149%	-46%
CDB	4.2	48%	69%
Commercial Bank	9.3	-16%	32%
DFCC	13.3	-66%	2%
First Capital	43.7	-446%	-221%
HNB	7.2	10%	47%
HDFC	9.3	-16%	32%
HNB Assurance	14.4	-80%	-6%
Janashakthi	6.5	19%	52%
LB Finance	4.5	44%	67%
LOLC Financ	6.1	24%	55%
LOLC	4.9	39%	64%
Lanka Ventures	9.9	-24%	27%
MBSL	15.2	-90%	-12%
Nation Lanka Finance	5.5	31%	60%
NDB	8.5	-6%	38%
Nations Trust	7	13%	49%
Pan Asia	6.6	18%	51%
People's Leasing	6.4	20%	53%
Sampath Bank	5.7	29%	58%
SDB	7.8	3%	43%
Seylan Bank	8.5	-6%	38%
Singer Finance	8	0%	41%
SMB Leasing	21.8	-173%	-60%
Softlogic Finance	6.2	23%	54%
SFS	3.7	54%	73%
Union Assurance	7.2	10%	47%
Union Bank	47.7	-496%	-251%
Vallible Finance	4.8	40%	65%

Excellent work EC. Good lesson for the fortunetellers.

Can you give one example how you calculate

For example  sayhow you caculate  PLC

20% and 49%

Thanks

Its better if you could teach us all how to do those stuff. At least a good place to learn.
Thanks..

@EC
Just for clarification

Let us assume NDB price is Rs.100. Discount to market shows 38%. Does it mean that NDB would have been traded at around Rs.138 level?

EC has done a huge work.

I think he did the calculations like this:

By reverse engineering  some of the output, I got Market PER  as 13.7 approx.

If we go to last line, it says
Valibel Finance is trading at a PER of 4.8

Note: to get PER , you have to :  trading price / Earning per share EPS  
 62/12.5 = 4.8 (VFIN EPS is 12.5 and Trading @ 62)
(output slightly differ due to varying trading price at the time of calculation)

As he has taken market PER as 13.7 ,  to get the discount ratio  
(13.7 - 4.8 )/13.7 = 65%

i.e VFIN is trading @ 65% discount to market PER . This 65% is there in that table in green.

This analysis is based on PER to Mkt PER .

To answer worthiness's question ,
using above figures


If we took this 65% directly to get the prices , VFIN mkt price of 62/-
62.00 x 1.65 = 102.30  (or in NDB 100 x 1.38 = 138)
 is not correct.

As mkt 'PER' is 13.7 and EPS of VFIN is 12.5,
we have to multiply (12.5 x 13.7 ) and get  'should be price' = 171.25
To match market PER (13.7) VFIN should trade @ 171.00 !  and not 102.

If we compare 'should be' price 171 and current price 62 we get the same discount ratio

(171 - 62 ) / 171 = 65%  

( output differs due to raw inputs)

---
sorry if I did an error somewhere

Other column is same , sector PER is considered instead of Market PER.
We should remember to see the sector PER always.

EC has done a huge work.

I think he did theservice culations like this:

By reverse engineering   some of the output, I got Market PER  as 13.7 approx.

If we go to last line, it says
Valibel Finance is trading at a PER of 4.8

Note: to get PER , you have to :  trading price / Earning per share EPS  
 62/12.5 = 4.8 ([size=37]VFIN EPS is 12.5 and Trading @ 62[/size])
(output slightly differ due to varying trading price at the time of calculation)

As he has taken market PER as 13.7 ,  to get the discount ratio  
(13.7 - 4.8 )/13.7 = 65%

i.e VFIN is trading @ 65% discount to market PER . This 65% is there in that table in green.

This analysis is based on PER to Mkt PER .

To answer worthiness's question ,
using above figures


If we took this 65% directly to get the prices , VFIN mkt price of 62/-
62.00 x 1.65 = 102.30  (or in NDB 100 x 1.38 = 138)
 is not correct.

As mkt 'PER' is 13.7 and EPS of VFIN is 12.5,
we have to multiply (12.5 x 13.7 ) and get  'should be price' = 171.25
To match market PER (13.7) VFIN should trade @ 171.00 !  and not 102.

If we compare 'should be' price 171 and current price 62 we get the same discount ratio

(171 - 62 ) / 171 = 65%  

( output differs due to raw inputs)

---
sorry if I did an error somewhere

Other column is same , sector PER is considered instead of Market PER.
We should remember to see the sector PER always.

I wonder how you find time for so much social service.. Appreciate the Good works.

Thanks Chinwi. Simple maths and good step by step explanation.

Hi all,
Nice to see that you all are interesting on this. It takes a bit of time yet very simple to understand.

As Chinwi correctly pointed out this is based on PE multiple valuation. The main ingredients for this analysis are 4Q EPS, sector PE and Market PE. sector PEs are important for 2nd tier stocks because they have little power to dictate terms on market PE. However for big stocks such as COMB the market PE should be the yardstick for the same reason.

You need to add up the earnings of the last 4 quarters of a company and derive the indicative EPS by dividing the number of shares in issue. By using this method we can put all companies into the same scale as the cyclical effect of some businesses too can be incorporated into the valuations.

Then you divide the closing market price by  4Q trailing EPS to get the  PE ratio.

Next step is to compare that with the industry and/or market PE.

How to interpret this is as follows. If we take NDB you can divide the price (165) by the PE (8.5x) then multiple by market PE (13.6x). This will show you a price of Rs264 which means current price is @ a discount of 38% or the company trading only at 62% of its market comparable value.

I believe this method can pop-up under valued counters very easily.

Thanks

EC as your chart sfs PE is 3.7. Is it correct?

Thanks  EC and Chinwi........

EquityChamp,


Supper
Thanks  EquityChamp

can any1 help me finding me the latest report of  - CAL's Key Performance Indicators

i have the this - "1466161066_Key Performance Indicators   - 17.06.2016" nothing after that cant find any at the research category as well. thank you.Big Help.Pls . .. .

Super work EC .......

Thanks. EC...

Section 2 for your information. Beverage , Food & Tobacco. Just look at the upside potential of Bairaha, Three Acre Farms, Tea services & Raigam Salterns. Distilleries and Keells Food products too having good potential in medium to long term.

Thank you.

As at 19th Aug 16	PE	Discount/(Primium)  to Industry	Discount/(Premium)  to Market
BAIRAHA FARMS	4.9	71%	64%
CARGILL	19.7	-16%	-45%
CEYLON TOBACCO (+)	15.5	9%	-14%
Cold Stores	19.3	-14%	-42%
CONVENIENCE FOOD	14.1	17%	-4%
DISTILLERIES	12.6	26%	7%
HARISCHANDRA	22.7	-34%	-67%
KEELLS FOOD	13.1	23%	4%
Lion Brewery	29.5	-74%	-117%
LMF	38.5	-126%	-183%
NESTLE	29.9	-76%	-120%
RAIGAM SALTERNS	8.7	49%	36%
RENUKA AGRI	5	71%	63%
RENUKA FOODS	11.5	32%	15%
Tea services	8.6	49%	37%
THREE ACRE FARMS	4.5	74%	67%

Based in my calculation ALLI price should drop to 850 levels because of the coming right issue . it should not trade above 850 levels.
CDB,SFIN are so attractive based on dividends and earnings.CCS looks over value that's the reason for foreigners sell.

TARGET wrote:EC as your chart sfs PE is 3.7. Is it correct?

?????

Thank lot for both Equity Champ & Chinwi.. Superb....

TARGET wrote:

TARGET wrote:EC as your chart sfs PE is 3.7. Is it correct?

?????

It is not right. SFS not have a PE ratio as its 4Q EPS is zero. Also some other stocks of the finance sector have incorrect valuations. I will publish the amended list in my next submission.
Thanks

Chemicals & Pharmaceuticals stocks for your information, the third batch. CIC and Haycarb have discounted values now.

As at 19th Aug 16	PE	Discount/(Primium)  to Industry	Discount/(Premium)  to Market
CIC	7.0	31%	49%
CHEMANEX	14.2	-39%	-4%
HAYCARB	6.8	33%	50%
MULLERS	11.8	-16%	13%
UNION CHEMICALS	8.8	14%	35%

EquityChamp wrote:Hi All,
The below is my calculation and identification of Financial sector stocks trading at a discount to the respective industries/market. I could see lot of investment grade counters in terms of valuation gaps. Hope this will be useful for you to take some logical decisions. The numbers are based on latest published financials and PE is calculated based on 4Q trailing EPS of each company. Gaps highlighted in dark green are trading at the deepest discount prices whereas green highlighted ones also have mid term price appreciation potentials.

For me CDB & LB Finance are super. Also stocks like Vallible Financee, Sampath, Alliance Finance, LOLC, Nation Lanka & Peoples Leasing have great potential for price gains.
Thanks
 

As at 16th Aug 16	PE	Discount/(Primium)  to Industry	Discount/(Premium)  to Market
Abans Finance	20.6	-158%	-51%
AIA Insurance	23.3	-191%	-71%
Alliance Finance	5.9	26%	57%
Amana Bank	31.9	-299%	-135%
Arpico Finance	4.3	46%	68%
Asia Asset	6.9	14%	49%
Asian Alliance	9.4	-18%	31%
Bimputh Finance	10.9	-36%	20%
Central Finance	12.1	-51%	11%
Ceylinco Insurance	8.6	-8%	37%
Chilaw Finance	19.9	-149%	-46%
CDB	4.2	48%	69%
Commercial Bank	9.3	-16%	32%
DFCC	13.3	-66%	2%
First Capital	43.7	-446%	-221%
HNB	7.2	10%	47%
HDFC	9.3	-16%	32%
HNB Assurance	14.4	-80%	-6%
Janashakthi	6.5	19%	52%
LB Finance	4.5	44%	67%
LOLC Financ	6.1	24%	55%
LOLC	4.9	39%	64%
Lanka Ventures	9.9	-24%	27%
MBSL	15.2	-90%	-12%
Nation Lanka Finance	5.5	31%	60%
NDB	8.5	-6%	38%
Nations Trust	7	13%	49%
Pan Asia	6.6	18%	51%
People's Leasing	6.4	20%	53%
Sampath Bank	5.7	29%	58%
SDB	7.8	3%	43%
Seylan Bank	8.5	-6%	38%
Singer Finance	8	0%	41%
SMB Leasing	21.8	-173%	-60%
Softlogic Finance	6.2	23%	54%
SFS	3.7	54%	73%
Union Assurance	7.2	10%	47%
Union Bank	47.7	-496%	-251%
Vallible Finance	4.8	40%	65%

Thank you very much for both Equity Champ & Chinwi, much appreciate your effort.
@ EC, if you’re not busy,
Can I have your comment about my post which is mentioned below, please??

http://forum.srilankaequity.com/t52435-crl-future-expectation#323026

Thank you.

EC did and continuing the hard work.

I did small contribution and do not deserve -and never expected- that much applaud  

 thanks all.

Thank you for this @EquityChamp , and thank you@chinwi for clarifying the doubts.
its users like you who , amidst the number of spammers and chums who promote crappy stocks make this forum interesting and worth the log-on

@ EK, all I have to say is that you have done a worthy mid term investment. I am sure you can have a vey good night sleep for the coming few quarters.