In the Banking and Finance sector one of the undervalued and steadily growing stock is CDB. I am sharing certain information to get your feed back whether CDB can keep on the momentum going.
From 2001 to 2011, CDB’s total asset base has grown from mere Rs. 276Mn to Rs. 14Bn. The annual revenue has grown from mere Rs. 25Mn to around Rs.2 Bn at present. Net assets which recorded a negative figure in 2001 have been converted to a positive of Rs. 1.91Bn. Deposits from Customers have grown to 6Bn. A loss making entity in 2001, CDB has continuously recorded growth in profitability since 2004. CDB was recently assigned BBB-/P3 credit rating by RAM Rating (Lanka) Ltd. CDB today ranks as the 7th largest player in terms of total assets among 36 financial institutions registered under the Finance Companies Act with Central Bank of Sri Lanka.
Sep'09 Dec'09 Mar'10 Jun'10 Sep'10 Dec'10 Mar'11 Jun'11 Sep'11
Int Income 335 372 370 380 419 443 489 533 597
Other Income 28 30 36 36 46 166 246 40 126
363 402 406 416 465 609 735 573 723
Net Income 129 140 194 199 250 384 481 299 418.5
Oper.Exp 102 106 125 140 161 180 163 198 229
Bad Debt Prov 18 18 25.7 12 10 -15 73.4 7.9 5.1
PAT 3.1 10.3 40.6 34.5 65 211 222 80.2 161
EPS 0.08 0.26 1.02 0.87 1.57 5.31 5.6 2.02 3.58
• Earning from Interest Income shows a steady increase from Qtr to Qtr
• Other Income shows a steady increase and has peaked during the Dec & Mar 2010
• EPS showing a steady growth up to Mar’10 and sliding back
The peak performance of CDB can be seen during Mar’11 Qtr where the Total Income has touched 735Mn, and out of it 246 Mn has come from Other Income and PAT recorded 222Mn.
Other income is a major portion of their Top line and bottom line performance. In the Jun 2011 Qtr Interest income has increased to 533Mn compared to 489Mn in March’11, Since the Other Income portion is very low in June 11, reporting only 40Mn the PAT has come down to 80.2Mn compared to previous Qtr 222Mn.
If we analyze the Other Income portion for the FYE 2010/11
Dividend Income 2.5 Mn
Fees & Comm 150.6 Mn
Disp of Leased Asst 28.3 Mn
Sale of FA 1.6 Mn
Quoted Inv-M2M 311.7 Mn
Total 494.7 Mn
The only Quoted Security Investment CDB has invested is in Ceylinco Insurance. They hold 564,000 shares making them the 7th largest shareholder. The cost of the Investment is 99,909,075, averaging for a price of 178 per share. The market Value as at 30March 2011 reported is 411,600,000 which averages at Rs.730 per share.
I don’t know whether CINS traded at this level during March 2011. Even if the price is correct, have to see what they are going to report at the current price level.
CDB recorded an EPS of 13.32 last FY. Since the other income portion has diminished in value only area they can report a good PAT is through the increasing interest income base. Still if they can report an EPS of 5.50 for the next 02 Qtrs still its undervalued.
Can they achieve