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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » Analysis of REEF in depth

Analysis of REEF in depth

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sapumal


Vice President - Equity Analytics
Vice President - Equity Analytics
@Shajesh wrote:
@sapumal wrote:you will see a huge profit in CARS /Buki income statement. They (Palm oil) don't do translations in SLR, but statements are prepared using SLR. After rupee devalue All the net assets (foreign) marked in foreign currency will converted into SLR. That's 3% of the NAV
Also you have to consider strength of their currency relative to USD

I can see that you are crying. but i cant help u

I don't need your help. I don't have any CARS group share. I owns only reef.

Share this post on: redditgoogle

Post Wed Jan 25, 2012 3:04 pm by greedy

The below is a matrix... showing profits required by REEF to justify its share price by 2016 at different P/E levels. REEF will have 173mn shares by 2016 after the conversion all of its warrants.


Analysis of REEF in depth - Page 2 Reef_b13

Post Wed Jan 25, 2012 3:29 pm by innam

@Chinwi wrote:

If Sri Lanka become a place like that in 2-3 years of time I feel we will see revaluation of everything.


Well that's fair enough, you have invested based on your experience and gut feel...less experienced investors with no profits to play with shouldn't invest on future magic. Trading is an entirely different matter.

Since you have invested in warrants hope you manage your risk. Remember if the price of the share is below 40 on conversion day the warrant price goes to 0.

Other negatives to note
-Whenever a warrant factory converts it increases the shareholding towards smaller retailers who are likely to get caught on margin calls (what happened over the last two trading day will repeat in future as well). in 2012 10 million shares (provided the big guys buy their allocation fully) will be issued to smaller retailers when the warrant converts.
-If you look at the shareholding and warrant holding list of REEF, it is eerily similar to GREG in that most of the big boys are on margin accounts. (funnily enough it's the same margin provider in both cases)

Post Wed Jan 25, 2012 4:04 pm by lokuayya

innam ,

Nice to see you back.
You are one of the most seasoned analyst.
i would like to ask you about the current market situation because you are a one who always post comments without any bias.
How do you asses the current market situation , will it perform this year positively?can it reach beyond 6800.

Post Wed Jan 25, 2012 4:14 pm by smallville

innam,

Being speculative in nature since some big boys are swinging this share time to time;
Since REEF is going to be a hotel chain, I expect some demand for their hotels situated in down-south region..

If REEF's going price is 40 now, putting all the fundamental aspects aside, isn't it fair to assume REEF N price will be over 100 in 3 years time? (at the time of conversion)

If so if you buy REEF.19 around 10, costing the conversion to 50, when these warrants listed at least the N price could be expected to be at 80 which if you sell gives u a good capital gain.. Even selling at 70 if margin calls occur is a good gain to me..

Just my thinking Smile

cseguide

Post Wed Jan 25, 2012 4:49 pm by cseguide

@lokuayya wrote:innam ,

Nice to see you back.
You are one of the most seasoned analyst.
i would like to ask you about the current market situation because you are a one who always post comments without any bias.
How do you asses the current market situation , will it perform this year positively?can it reach beyond 6800.
going away from the topic somewhat but still relevant. I am also asking the same question from you innam ? please give your valuable comments on this.

innam

Post Wed Jan 25, 2012 5:08 pm by innam

@cseguide wrote:
@lokuayya wrote:innam ,

How do you asses the current market situation , will it perform this year positively?can it reach beyond 6800.
going away from the topic somewhat but still relevant. I am also asking the same question from you innam ? please give your valuable comments on this.

Sorry i'm pretty useless at predicting market directions.

Just a simplistic analysis is that for the index to go past the figure @lokuayya mentioned.....1) PE has to go past 18 (looks unlikely given the current mood) or 2) EPS has to grow by 23% y-o-y while trailing PE remains at the current 14 levels (possible but a lot will depend on the overall economy) or 3) a combination of 1 & 2

So the key question is do you beleive that EPS will grow 25% y-o-y over the next 4 quarters?

avatar

Post Wed Jan 25, 2012 5:24 pm by lokuayya

thanks innam,

avatar

Post Wed Jan 25, 2012 5:42 pm by lokuayya


yes, innam, as you said the mood is still not good.when in good mood people can do any thing.

cseguide

Post Wed Jan 25, 2012 6:31 pm by cseguide

Thanks innam

smallville

Post Wed Jan 25, 2012 6:35 pm by smallville

On another thread Antonym mentioned the current PE of our market is still relatively too much compared with other developed markets while its cheaper than rest of the world..

http://mobile.bloomberg.com/apps/quote?ticker=CSEALL%3AIND

Then it has room for another crash may be to 5000 before coming up.. Who knows even all these can be manipulated know?

market bull

Post Wed Jan 25, 2012 6:49 pm by market bull


lol! lol! lol!


@sapumal wrote:
@Shajesh wrote:
@sapumal wrote:you will see a huge profit in CARS /Buki income statement. They (Palm oil) don't do translations in SLR, but statements are prepared using SLR. After rupee devalue All the net assets (foreign) marked in foreign currency will converted into SLR. That's 3% of the NAV
Also you have to consider strength of their currency relative to USD

I can see that you are crying. but i cant help u

I don't need your help. I don't have any CARS group share. I owns only reef.

Chinwi

Post Wed Jan 25, 2012 7:55 pm by Chinwi

@greedy wrote:The below is a matrix... showing profits required by REEF to justify its share price by 2016 at different P/E levels. REEF will have 173mn shares by 2016 after the conversion all of its warrants.


Analysis of REEF in depth - Page 2 Reef_b13

Please Note I did not intend to promote this share. Now I feel I have talked too much about this.
Greedy,
The following is also reproduced from REEF cash flow forecast sent to us last year. .

Year 2016
Room nights 164,250
Room rate 160 Us$ (avr)
Revenue 2,487,340,134.00 ( Exchange Rate 116.00)
F&B Rev 2,035,000,000.00
Total Revenue 4,522,436,607.00
Direct Costs 904,487,321.00
Opr. Expences 994,936,054.00
Total Expenditure 1,899,423,375.00
Operational Profit 2,623,013,232.00 ( 2.623 billioin)

just the forecast.



greedy

Post Wed Jan 25, 2012 8:22 pm by greedy

@Chinwi,

Agreed Smile. I did not have that forecast. But I don't think anyone will say that you are promoting it. I can remember we discussed this share some 18 months ago in another forum Smile

I added my calculation for anyone to see whether those profit levels are achievable or not and I don't know how REEF's performance would be in the future!

innam

Post Wed Jan 25, 2012 8:55 pm by innam

@Chinwi wrote:

The following is also reproduced from REEF cash flow forecast sent to us last year. .

Year 2016
Room nights 164,250
Room rate 160 Us$ (avr)
Revenue 2,487,340,134.00 ( Exchange Rate 116.00)
F&B Rev 2,035,000,000.00
Total Revenue 4,522,436,607.00


Well that's really helpful thanks for showing us the forecast.
So the forecast hopes to achieve Revenue from room and F&B of around 28,000 per day on average (during off season and tourist season).
That looks very optimistic (unless they have a casino and other extra curricular activities)....just as a comparison for the six months ended March 31 RHTL which is the highest star class listed hotel was only able to generate Revenue from room and F&B of 27,800 and KHL with 512,000 room nights was only able to generate 5.6 billion in revenue for the year ended March 2011 (REEF hopes to generate 4.5 billion in revenue from 164,000 room nights).
REEF needs to do a lot of magic to deliver the forcasted revenue in 2016. Note that i'm only pointing out the negatives, IF management deliver on what they promise then there's money to be made.

avatar

Post Wed Jan 25, 2012 10:02 pm by seyon

Very good analyis and discussion, I am also following this share after spotted by smallville.

Next warrants is going to be converted on May 2012 ( I guess) So we have to wait and see the trend of the shares and warrants during the conversion. that would give some input for our analysis interms of price trend shareholding structure.

Thanks for the analysis.




TortoizePlus

Post Wed Jan 25, 2012 10:06 pm by TortoizePlus

@innam wrote:
@Chinwi wrote:

The following is also reproduced from REEF cash flow forecast sent to us last year. .

Year 2016
Room nights 164,250
Room rate 160 Us$ (avr)
Revenue 2,487,340,134.00 ( Exchange Rate 116.00)
F&B Rev 2,035,000,000.00
Total Revenue 4,522,436,607.00


Well that's really helpful thanks for showing us the forecast.
So the forecast hopes to achieve Revenue from room and F&B of around 28,000 per day on average (during off season and tourist season).
That looks very optimistic (unless they have a casino and other extra curricular activities)....just as a comparison for the six months ended March 31 RHTL which is the highest star class listed hotel was only able to generate Revenue from room and F&B of 27,800 and KHL with 512,000 room nights was only able to generate 5.6 billion in revenue for the year ended March 2011 (REEF hopes to generate 4.5 billion in revenue from 164,000 room nights).
REEF needs to do a lot of magic to deliver the forcasted revenue in 2016. Note that i'm only pointing out the negatives, IF management deliver on what they promise then there's money to be made.

Thanks innam and Chinwi,

Tourist arrival is growing more than we expected. This month only we have near 100,000 arrivals. The figures hotels show today may be completely different when we see 2013 results. When considering the growth, I see REEF expectation is less than optimistic level but at the end you have to grab the market share which very competitive especially in beach resorts to justify the figures.

Further, when you analyze top shareholders in REEF and its subsidiaries you can clearly identify backup given by some government politicians which other small palyers can achieve.

I don’t have REEF at the moment but we’ll consider when we see good investor sentiment in future.

Again thanks for the healthy discusstion.

avatar

Post Thu Jan 26, 2012 9:44 am by sapumal

Hikkaduwa - 93
Waskaduwa - 155
Kalpitiya -150
Passikudah - 50 (Initial stage)
Hambantota - 200 (still nothing has done)

Upto now they have,

finalized 400 rooms.
50 is about to finalized. (High end tourism)
(450 )

200 rooms are on card

total 650 rooms are on card. What could be the probable room nights ?

If they built a hotel on Passikudah (when it was included to the hot map) I hope they will go beyond 800 rooms

Just a hope. But this is not 100% my thinking. REEF have expressed their desire to build hotels in Hambatota and Passikudah


avatar

Post Thu Jan 26, 2012 10:56 am by sapumal

Thanks Chinwi. This will useful for my further analysis

@Chinwi wrote:
Please Note I did not intend to promote this share. Now I feel I have talked too much about this.
Greedy,
The following is also reproduced from REEF cash flow forecast sent to us last year. .

Year 2016
Room nights 164,250
Room rate 160 Us$ (avr)
Revenue 2,487,340,134.00 ( Exchange Rate 116.00)
F&B Rev 2,035,000,000.00
Total Revenue 4,522,436,607.00
Direct Costs 904,487,321.00
Opr. Expences 994,936,054.00
Total Expenditure 1,899,423,375.00
Operational Profit 2,623,013,232.00 ( 2.623 billioin)

just the forecast.


Hoping we are going to hit exchange rate of 120 in near future. Basil also put pressure on Cabral.

@seyon wrote:Very good analyis and discussion, I am also following this share after spotted by smallville.

Next warrants is going to be converted on May 2012 ( I guess) So we have to wait and see the trend of the shares and warrants during the conversion. that would give some input for our analysis interms of price trend shareholding structure.

Thanks for the analysis.

Interesting person in the list is Tharana Gangul . Very close person to නිමල්, ධම්මික, CEO and director of RCL

He didn't had much warrants(1Mn) . But from 2010/12/30 to 2011/9/30 he has bought further 4Mn warrants (W18). Average cost may be over 25. He is one who know about REEF future (may be for trading purposes).
Director of RCL
RCL invested on REEF
RCL has connection with නිමල් පෙරෙරා
නිමල් , දිලිත, Amunumaga close persons



Also we thought when DP sold reef @45 it is very much over valued (15.7 Mn shares). But when it released the quarter report on 2011 March we can assume it is fairly valued
Profit for 3 months = 14.3Mn

EPS = .91
Annualized EPS = 3.65
PE = 12.3

With the increase of tourist arrival and increased room charges profit of 57Mn (PE = 12.3 ) hadn't been a very difficult achievement.
But they chose to expand.



Last edited by sapumal on Thu Jan 26, 2012 1:10 pm; edited 1 time in total

avatar

Post Thu Jan 26, 2012 11:18 am by seyon

@sapumal wrote:

Interesting person in the list is Tharana Gangul . Very close person to නිමල්, ධම්මික, CEO and director of RCL

He didn't had much warrants(1Mn) . But from 2010/12/30 to 2011/9/30 he has bought further 4Mn warrants (W18). Average cost may be over 25. He is one who know about REEF future (may be for trading purposes).
Director of RCL
RCL invested on REEF
RCL has connection with නිමල් පෙරෙරා
නිමල් , දිලිත, Amunumaga close persons

sapumal

Yes I know all related parties to නිමල් & දිලිත are in the list, but anything will be happend in anytime. As innam pointed these guys holding warrants in margin a/c, some times they might be forced to sell some qty when mkt drops. However i am also bullish on warrants 19 after smallville notice. But i am waiting till the next warrant conversion.

Chinwi

Post Thu Jan 26, 2012 1:58 pm by Chinwi

Seyon
However i am also bullish on warrants 19 after smallville notice. But i am waiting till the next warrant conversion

That is clever.
We have lot of time to observe this share and take decisions - to collect it or not-.

There may be ups and downs in next 1-2 years creating opportunities if we wanted to collect it.
At moment I bet 5% of my money on this.

As Innam pointed out this could be very risky as their calculations are unrealistic. But I feel this is too good to loose IF they succeeded in achieving even half of their targets in 2-3 years. The development of infrastructure by the Govt. in this areas will definitely boost the values.

TortoizePlus
Further, when you analyze top shareholders in REEF and its subsidiaries you can clearly identify backup given by some government politicians which other small palyers can achieve.

That is another + point I see here when forecasting the future of this entity. ( Not about the ethical part of these dealings)

The Govt. is trying to get funds from Qatar to build toll highway to Kalpitiya from KAT. - Today's news.
I think now we can imagine their plans and understand why they (REEF) put so much money and interest in non-tourist area like Kalpitiya. All are inter connected.
Yesterday I got reliable inside news about deals with another world famous Hotel chain and their +ve response in coming to establish in Hambantota. I have to Refrain disclosing the name because it will be a huge showcase and surprise if they come to anywhere in Asia to start business. To strengthen their plans they need quick access to up country too. CMB-Kandy highway is going to get priority. There will be another good road from Mattala to N'Eliya via Wellawaya.
Ratmalana Airport is becoming a very important place.
At the moment there is a problem due to limited length of the runway (6050 ft)
Extending of it is a problem because the marshy land in Bellanwila side -runway 04- and Galle road is there in sea side end- runway 22-. There is a proposal to send the Galle Road under the runway (like in Dubai - East end) or divert the Galle road towards the beach.

smallville

Post Thu Jan 26, 2012 9:44 pm by smallville

@seyon wrote: However i am also bullish on warrants 19 after smallville notice. But i am waiting till the next warrant conversion.

Frankly, I've to give credit to Chinwi for pointing me in this direction.. I was quite happy about VONE as a long trm hold and was trying to find out the info on it then a discussion with Chinwi changed my attention to REEF19.. Both were at the same range those days and I wanted to wait to buy it ard 10-15 range.. Wink
So still this has not come to my price but 13-14 is also ok for me.. But I've not started buying this apart from the 400 share I hold Wink he hee..

I still believe in a second chance to buy low..

Even if we put aside the fundamental and forecasted valuations, I think its a fair assumption that REEF can trade above 100 in 2-3 years time.. So with a conversion price of 40 for REEF19, its an easy 20% gain in 2-3 years.. Even sometimes REEF19 without converting can give u a 20% gain cuz REEF is a speculative share and there are ppl beind this to drag this to next level..

avatar

Post Thu Jan 26, 2012 11:59 pm by seyon

@smallville wrote:
@seyon wrote: However i am also bullish on warrants 19 after smallville notice. But i am waiting till the next warrant conversion.

Frankly, I've to give credit to Chinwi for pointing me in this direction.. I was quite happy about VONE as a long trm hold and was trying to find out the info on it then a discussion with Chinwi changed my attention to REEF19.. Both were at the same range those days and I wanted to wait to buy it ard 10-15 range.. Wink
So still this has not come to my price but 13-14 is also ok for me.. But I've not started buying this apart from the 400 share I hold Wink he hee..

I still believe in a second chance to buy low..

Even if we put aside the fundamental and forecasted valuations, I think its a fair assumption that REEF can trade above 100 in 2-3 years time.. So with a conversion price of 40 for REEF19, its an easy 20% gain in 2-3 years.. Even sometimes REEF19 without converting can give u a 20% gain cuz REEF is a speculative share and there are ppl beind this to drag this to next level..

Ok Small.. Thanks to Chinwi and you. I am also waiting till next warrant conversion. The way mkt goes, We may be able to buy less than Rs.10.. I am waiting the days to come

20% gain in 2-3 years ????? I can't understand the calculation. Pls explain..

Chinwi

Post Fri Jan 27, 2012 8:16 am by Chinwi

@seyon wrote:

Ok Small.. Thanks to Chinwi and you. I am also waiting till next warrant conversion. The way mkt goes, We may be able to buy less than Rs.10.. I am waiting the days to come

20% gain in 2-3 years ????? I can't understand the calculation. Pls explain..

Seyon,
I think it is a typo. ( or may be 200%)
Say you bought REEFw19 @ 15
If Reef N trade @ 100 in 2015
then REEFw19 = 100 - 40
= 60
your gain 60 - 15 = 45
45/15 = 3
= 300% ( without considering inflation)
= 200 % - 400 % possible

Chinwi

Post Fri Jan 27, 2012 8:22 am by Chinwi

+ contd-

if REEF N trade @ say 50 in 2015 (due to any unexpected reason)
Then REEF w19 = 50 - 40 = 10

(your cost = 15 + 40 = 55)
= LOSS

avatar

Post Fri Jan 27, 2012 8:41 am by seyon

@Chinwi wrote:+ contd-

if REEF N trade @ say 50 in 2015 (due to any unexpected reason)
Then REEF w19 = 50 - 40 = 10

(your cost = 15 + 40 = 55)
= LOSS

Thanks Chinwi. I don't think. At present Investor paying Rs.40 for the intial stage, If they built up within target time and start their operation, that would enhance the value of the share certainly. Anyway we will wait and see.

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