SAMP and VONE

Most likely by the financial sector led by SAMP, NDB and others

prabath wrote:Will Samp and vone lead the financial rally in coming weeks???????
http://www.ft.lk/2011/12/29/dhammika-to-be-appointed-chairman-of-sampath-bank/
Samp share at bottom,Vone below IPO price and recently moved to MPI.

Is VONE trading @ fairvalue ? even though it is below the IPO price.... Look at the finacial Net Assets is boosted by the goodwill by 12Bn ( Rs.12 per share) which is purposly brought up when DP transfer his holding to VONE ( SAMP@300, RCL@150 and so on..... double check the transfered price..)

Financial rally??? how long have we been waiting for this. nerver to come

seyon wrote:

prabath wrote:Will Samp and vone lead the financial rally in coming weeks???????
http://www.ft.lk/2011/12/29/dhammika-to-be-appointed-chairman-of-sampath-bank/
Samp share at bottom,Vone below IPO price and recently moved to MPI.

Is VONE trading @ fairvalue ? even though it is below the IPO price.... Look at the finacial Net Assets is boosted by the goodwill by 12Bn ( Rs.12 per share) which is purposly brought up when DP transfer his holding to VONE ( SAMP@300, RCL@150 and so on..... double check the transfered price..)

a good factual comment from seyon as usual

Since I have done a small analysis of VONE let me add my comments.

Following is a extract from the prospects;


As you all can see the net assets value of LFIN, RCL stands at 6.6 billion. That is the NAV of these companies. But in the market you cant buy a share at the same price of NAV. Therefore to Acquire ( 51.01 % in RCL, 52.73% in LB) the cost was 14Billion (According to the share price of that time). But the net assets acquired is 3.5 billion only. So the amount paid in excess is the goodwill.

For an example; You go to buy an off licence shop which is already well established and have regular customers. The shop owner ask for 100LKR for the shop which is very competitive price. According to the market in the area this is a very undervalued amount. But when you calculate the shop items and building, this only worth 50LKR. But you decide to buy the business anyway. So how much are you going to put in your balance sheet? Are you gonna put 50LKR as your net assets or 100LKR as your net assets including the goodwill you paid.

chamith wrote:Since I have done a small analysis of VONE let me add my comments.

Following is a extract from the prospects;

As you all can see the net assets value of LFIN, RCL stands at 6.6 billion. That is the NAV of these companies. But in the market you cant buy a share at the same price of NAV. Therefore to Acquire ( 51.01 % in RCL, 52.73% in LB) the cost was 14Billion (According to the share price of that time). But the net assets acquired is 3.5 billion only. So the amount paid in excess is the goodwill.

For an example; You go to buy an off licence shop which is already well established and have regular customers. The shop owner ask for 100LKR for the shop which is very competitive price. According to the market in the area this is a very undervalued amount. But when you calculate the shop items and building, this only worth 50LKR. But you decide to buy the business anyway. So how much are you going to put in your balance sheet? Are you gonna put 50LKR as your net assets or 100LKR as your net assets including the goodwill you paid.

Chamith
Well explanation on Goodwill computation. I am agreed with ur comments that, we can not buy well established companies @ NAV... Yes you have to pay premium, which is absolutely correct... But in the case of VONE, transfered price of security will lead provision for the impairment of Goodwill,which would basically affect the VONE bottom line

Just have a samll look, How will be the impairement of Good will impact the bottom line..

RCL

Shares - 56,502,600
Cost - 9,228,728,572
Transfered price -163.33
Current Mkt price - 140
Impairment - 1,318,364,572.00

LFIN

Shares - 35,321,200
Cost - 5,325,333,098
Transfered price -150.77
Current Mkt price - 140
Impairment - 380,365,098.00

About Rs.1.7Bn should be adjusted as impairment form Goodwill, which will hit to the bottom line.

SAMP is considered as strategic investment ( long term investment), this will not impact on goodwill, But Impairment will be charged as fall on mkt value

Look at SAMP

Shares - 22,917,200
Cost - 6,910,395,270
Transfered price -301.54 ( I am bit sure this price was boosted during the transfer.. )
Current Mkt price - 200
Impairment - 2,326,955,270.00

I am thinking that How VONE next annual report looks with these massive impairement provision...

chamith wrote:Since I have done a small analysis of VONE let me add my comments.

Following is a extract from the prospects;


As you all can see the net assets value of LFIN, RCL stands at 6.6 billion. That is the NAV of these companies. But in the market you cant buy a share at the same price of NAV. Therefore to Acquire ( 51.01 % in RCL, 52.73% in LB) the cost was 14Billion (According to the share price of that time). But the net assets acquired is 3.5 billion only. So the amount paid in excess is the goodwill.

For an example; You go to buy an off licence shop which is already well established and have regular customers. The shop owner ask for 100LKR for the shop which is very competitive price. According to the market in the area this is a very undervalued amount. But when you calculate the shop items and building, this only worth 50LKR. But you decide to buy the business anyway. So how much are you going to put in your balance sheet? Are you gonna put 50LKR as your net assets or 100LKR as your net assets including the goodwill you paid.

mewelawedi, RCL, SAMP, market price ekata wada aduwen neme dunne, wadiyen. SAMP ekale thibunne 250 . Dunne 300 RCL mata hariyatama mathaka na habai eth ganana wadi

Seyon,

Well observed. I totally agree about the goodwill impairment. On next financial statement they will have to show a big provision for impairment. Referring to your calculation the impairment should be 1.7 billion (not 17 billion) for LFIN & RCL.

Before the latest financial statement released I was wondering how are they going to fix the EPS for the current period.

According to 03/11 annual report the profit was 598,165,123 and the EPS was 1.35LKR. This EPS had been calculated by considering (Weighted Average number of Ordinary Shares in issue) 444,235,207 shares. But according to 09/11 report the EPS should be calculated using 1,086,559,353 shares. This consideration should have caused a nearly 60% EPS flop. But somehow surprisingly the EPS was well above what i had expected. Increment of PAT and a small negative goodwill helped to overcome the EPS calculation mess.

Therefore same time agreeing to the nearly 4 billion impairment pending, I keep my belief in the management.

Guys thanks for very good discussion.

chamith wrote:Seyon,

Well observed. I totally agree about the goodwill impairment. On next financial statement they will have to show a big provision for impairment. Referring to your calculation the impairment should be 1.7 billion (not 17 billion) for LFIN & RCL.

Before the latest financial statement released I was wondering how are they going to fix the EPS for the current period.

According to 03/11 annual report the profit was 598,165,123 and the EPS was 1.35LKR. This EPS had been calculated by considering (Weighted Average number of Ordinary Shares in issue) 444,235,207 shares. But according to 09/11 report the EPS should be calculated using 1,086,559,353 shares. This consideration should have caused a nearly 60% EPS flop. But somehow surprisingly the EPS was well above what i had expected. Increment of PAT and a small negative goodwill helped to overcome the EPS calculation mess.

Therefore same time agreeing to the nearly 4 billion impairment pending, I keep my belief in the management.

We have to wait till last finacial statement released. But if u are going to hold it for 3-5 years time horizone, collecting slowly is better option. DP might have some new plans with VONE.

.

Academic wrote:

VONE impairment was something expected at the time of IPO. See my explanations here http://forum.srilankaequity.com/t5059-vallibel-one-analysis

.

Thanks a lot Academic.
Well informatics.
We need this type of analysis.
Keep it up.

Moved to expert chamber.

This is what I call a rational discussion. I bow my head to the guys posting such post with deep insight.

Only if there is a way to get the " how will tomorrow be?" crowd to read and understand these underlying essense to base there decisions on.

rijayasooriya wrote:Moved to expert chamber.

yes, agree with you

yes seyon,

Absolutely this is a long term investment. I would say the time horizon should be 3< years. The main reason is that, the new hotel has to be built and have to wait till that passes the BEP. At the same time have to wait and see how the new management improve the performance of Orit and Delmage. Note that tomorrow one of VONE's associate company (20%) Waskaduwa will be listed.

Think to join with u lately...

Impairment is done where there is indicators for that..So IMO there is no indicators for impaiment since both SAMP and RCL are operating well.

laka wrote:Think to join with u lately...

Impairment is done where there is indicators for that..So IMO there is no indicators for impaiment since both SAMP and RCL are operating well.

How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

seyon wrote:
How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

Answer is there on your question itself as I highlighted above. You need not to be worried on recoverable value since both counters' present value of the future operational cash flow should be
over than purchase consideration due to their high EPS hence no need to impair... If u don't agree pls comment on that.

laka wrote:

seyon wrote:
How do u say there is no indiacation for impairement, In case of SAMP severe fall on its mkt value. Generally when u do the impairment test u have to compare ur cost of investment with either force sale value of the investment or present value of the future operational cash flow, which ever is high. Incase of force sale value Rs.100 less than the cost of investment, computation of present value of casf flow purely based on company's assumption, DP might use this tool to manage the effect on bottom line.

Answer is there on your question itself as I highlighted above. You need not to be worried on recoverable value since both counters' present value of the future operational cash flow should be
over than purchase consideration due to their high EPS hence no need to impair... If u don't agree pls comment on that.

Yes VONE can come out with very attracive assumption to overcome this issue, further our audtors also not capable to assess the resonableness, However Severe fall on MKT Value is a very good indicator. Anyway impairement is purely on profesional judgement
Will See Ho will take to Final Audited Finacial Statement.

Very good discussion.

I'm sure that VONE will use "Value in Use" and not current "Active Market Price" to test impairment of goodwill. And also the decrease in active current market price could be argued temporary. Another point is that CSE could also be argued not an active market.... coz you can see the recent daily turnover.

With regard to goodwill amount you need also to read this in the Goodwill note in VONE's AR.

"The assets and liabilities as at the acquisition dates are stated at their provisional fair values, and maybe ammended in accordance with the SLAS 25 - Business Combinations, thus resulting an increase/decrease in the above goodwill."

I guess the assets of RCL & LFIN not fair valued in calculating goodwill. They have taken book values as provisional fair values in the accounts. So expect there could be change in the goodwill amount.

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

greedy wrote:Very good discussion.

I'm sure that VONE will use "Value in Use" and not current "Active Market Price" to test impairment of goodwill. And also the decrease in active current market price could be argued temporary. Another point is that CSE could also be argued not an active market.... coz you can see the recent daily turnover.

With regard to goodwill amount you need also to read this in the Goodwill note in VONE's AR.

"The assets and liabilities as at the acquisition dates are stated at their provisional fair values, and maybe ammended in accordance with the SLAS 25 - Business Combinations, thus resulting an increase/decrease in the above goodwill."

I guess the assets of RCL & LFIN not fair valued in calculating goodwill. They have taken book values as provisional fair values in the accounts. So expect there could be change in the goodwill amount.

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

[mention]laka on 16 June 2011- http://forum.srilankaequity.com/t5059-vallibel-one-analysis
[/mention] wrote:But As per VOL Bsheet, Those Reval surplus includes in Goodwill A/c itself...It sd b tranfered to Reval A/C. Have they assessed Fair Value @ the acquisition ???

My guess may be bit different from you.. Anyways Great Minds Think Alike

greedy wrote:

Investment in SAMP will have to be valued at "mark to market" basis starting from next Financial year as per IAS39/IFRS9. IAS39/IFRS9 (accounting standards) are applicable for the financial periods starting on or after 1 January 2013.

Since Samp is a strategic Investment of VONE (14.99% or 15%) , I think they need not adjust MV.

@Laka,

Where did you get this "Strategic Investment" concept?? This is going to change!!!

You may be aware that Sri Lanka is in the process of adopting International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs). When this become effective the old Sri Lanka Accounting Standards (SLASs) will be replaced by IASs & IFRSs. Though the implementation dates have been postponed couple of times.

As per the old SLAS companies had an option to treat investments at lower of cost or market value. But once these new standards comes in there is no such option. Companies will have to account for investments at fair value or amortised cost.

See here for effective dates for new standrds =====> http://www.slaasmb.org/IAS%20AND%20SLAS.html

( I hope this site has been updated for recent developments....)

There is a small error in my previous reply. IAS39 is effective for the financial periods starting on or after 1 January 2012 as per SLAASMB and not 1 January 2013 as I mentioned . IFRS 9 has not yet been adopted in Sri Lanka as per the SLAASMB and efeective date of this is 1 January 2013.

Therefore to the best of my knowledge, SAMP will need to be Mark to Market/Fair valued in VONE's accounts for the accounting periods starting from 1 January 2012 provided the effective date of IFRS9 as per SLAASMB is correct!!!