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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Market giving a second chance! + COCR Discussion...

Market giving a second chance! + COCR Discussion...

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Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
There seemed to be some resistance and hesitancy today from the market to go down fast and into deep red.

This fall is creating opportunities and should drag people into the market.

Shares like Reef.W, PLC, COCR, DIMO, BFL, VONE, etc are giving a second chance... (Not promotion, buy at your own risk please. Just citing examples). There are many more such shares going towards or near July/August prices and not so hard to find. Maybe someone can create a list of attractive shares with their July/August prices and current prices compared. I shall do it if i have time and post it.

Market has already broken many important barriers in the last month or so and also moved up quite fast. It seems to be taking a bit of a break and slowly it may turn its head. I feel the Dec-Feb period will be very interesting. Twisted Evil Also Dec is the time Banks release their results and its a start of a new chapter/year.

Cheers!



Last edited by Rapaport on Thu Oct 18, 2012 3:48 pm; edited 2 times in total

UKboy

UKboy
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
After sometimes I bought some shares today However couldnt collect the qtys I wanted to collect ( for the price I want buy). Sad
I think there's no harm to check your skills time to time..

Light of Hope


Vice President - Equity Analytics
Vice President - Equity Analytics
@UKboy Same here, I also bought some. couldn't resist any more. I feel there could be another chance today to buy some more

Patience is the key. How many are capable of buying now? how many have cash?

opfdo

opfdo
Vice President - Equity Analytics
Vice President - Equity Analytics
see the moderators approch. they are collecting......
why ?
because the prices are going down to cheap levels again.....
what are you going to do..... I am asking specially from ppl who are blamming to the cse & sec......
are you still worring ? or still struggling with credit...... if so you will miss this oppertunity......
collect good counters....with small quantities......
I too collected few.

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Opfdo

You are correct.

People should see the wonderful opportunity in front of them. They must look at Sri Lanka 3-5 years from today and take this factor in their decision making instead of going for a quick buck.

We can say market could have bottomed at 4700 level since it touched this point twice in the last 06 months and failed to go below. At this point PE ratio according to Bloomberg was around 10X making CSE a good buy. Market had fallen over 40%. Foreigners have realised the potential of CSE and most think in the long term horizon.

Economy looks as if it will turn towards the positive side next year onwards.

Companies are not doing as bad as people thought, especially bank stocks and motor stocks (some). We have to see this qtr results as well.

Cheers!

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yep Rapaport ,
You have mentioned couple of good counters specially like COCR And BFL .

We need separate the COCR from other shares since this is not undervalue share at the movement according to all available financials of the company. But this looks giving a promising future with healthy expansion going on specially in highly profitable micro finance sector.

Their micro Finance Portfolio which is worth of 2.7b by the end of 31st march. Micro finance gives around 28% book interest rate and above 50% Effective interest to the company due to its weekly collection procedure. So For last six months COCR should have earned more than 1b as their net interest income only from the micro Finance sector. ( just an assumption )

Their last year profit was around 800m with 28 branches net work and they are planning to expand it by adding another 22 to the list. So What will be the out come next year.

Dont forget COCR is one of the Micro finance leader in the Sector and looking to expand rapidly under an excellent Management team.

Their ESS was scheduled at Rs 32 and 3 year strategic Share price target was 287 which looks quite awkward with their low net assets value. But They can Go for a huge EPS by the end of 3 years.

World famous companies like GE traded at PE of 90 when they were at the growing stage under their excellent CEO Jack Welch around 1990.

All above are from publicly available Information from their Latest annual report.

Tc

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yes Amal

COCR does stand out. Why do you say it is not undervalued??

Their asset value is not very impressive and they are just entering a new growth path.

Initial results have been quite impressive and attractive. We must track this stock and see how it performs in these testing times. We must follow the half year results due during this results season and the next one. Things should improve for the finance sector from next year onwards if the Central bank and Govt behave themselves and follow strict guides. Also in a growing economy and untapped NorthEast, there is huge potential.

By looking at the demand LFIN is having there seems to be an indication that the finance companies have not had a very bad time as expected.

COCR new management is doing a good job and branch expansion can eat into profits as well but will do miracles in the future. I am aware of thier strategic plan but even if they achieve 100/- instead of 297/- from here, then still it is a good acheivement!

I would like to dig deep into COCR hmmmm.....

Cheers!

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Yep.

I am also targeting the price level which u mentioned in 2-3 years time.Once you expand with correct controls it is nothing to repeat the profit every quarter.

Why i say it is not undervalue is, We need to wait till the results out to say it and for me this s a value share at the movement. Exactly like BFL when it was around 20- 30 level with small losses.

I have hell of lot of shares of this and hope to keep it for long term.

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Good Luck Amal and hope our efforts and investment turn out to be fruitful. Really appreciate further details of COCR if any and i shall post if i get more data.

Cheers!

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I have couple of info. but cant post at the movement. What i can tell is Every thing going well and they are expanding as we all expected may be more than expected. Additionally they set up their Internal Audit team which is a compulsory for any company to grow steadily while stream lining processes and protecting their assets. ( Top Jobs Advertisement ). Just search how other counties do micro Financing.

This will be my first Value investment in my life. Thanks to Benjamin graham. Feel i believe too much on this share. ha ha.
Lets see

nimantha80


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
good thinking rapaport.Share's which fell down rapidly will reach thier previous levels or more.Time to grab them now.

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
This is what I posted on COCR on this thread;
http://forum.srilankaequity.com/t22656-commercial-credit-cocr-a-hidden-gem#136699

The original post has been modified to depict the PBV as of today..

Lets have a look at the COCR 2012/2011 figures in a nutshell;

Profit = 758.29 Mil (2012), 60.1 Mil (2011) - 12.5X profit growth or 1250% profit increase
Equity - 1019 Mil
No.of Shares - 218 Mil
NAV = 5.45 (Errata to financials)
EPS = 3.48
PBV = 2.8 (as of 18-10-12 share price)

Advantages
1. Interest income, other income - More than doubled
2. Fair value of investment property - 27X increased.
3. EPS - 3.48 (0.28 in FY 11/12) which is a 12.4X increase
4. Fixed deposits - 365.3 Mil as compared to 110.6 mil in 2011 which is more than a 300% growth
5. Micro Finance - 2.7 Bil as compared to 1.07 Bil in 2011 which is more than a 110% growth
6. Other loan items - More loans have been provided in Educational, Business, Pawning in 2012.
7. Lease & Hire purchase receivables - Nearly doubled at 6.1 bil in 2012, 3.8 Bil in 2011
8. Loans and advance receivables - 2.1X increase..
9. Deposit from Customers - 6.76 Bil, a growth of over 75% from 2011

To be noted - Their Micro finance business is thriving..

Dis-advantages
1. Staff cost - Almost doubled (have to expect with the growing stage of a company. Also salary increments, new hires could've been necessary time to time)
2. Admin Expenses - Increased almost 1.5X
3. Bad and Doubtful loan writ offs - Almost doubled @ 114.1 Mil in 2012.

4. Investment in Securities - VONE 209,000 shares@ 5.225 Mil cost. Now valued at 3.97 Mil. Which is a loss of 1.25 Mil.
Fall in Securities - incurred a loss of 13.8 Mil (as of 30-03-12) financials. This value could've gone down since the market came up.

Conclusion (Not a buy sell decision)
At Today's avg price of 15.3, PVB = 2.8. This is a higher figure. . Normally when a finance company trade @2-2.5X, it was said to be normal and anything below 2 would've been considered undervalued too. This could be counter argued but mostly its an individual's preference of investing companies above 2.5X.

Therefore; on PBV basis the max value this should trade, imo, is about 13.5. When this was around 12 it was clearly undervalued and valuable.
For a share worth 15 rupees they've announced 1 rupee dividend earlier too and it brought the share to 18+.. Turned out to be a good dividend yielding company besides JINS.
Beside, take a look at companies like LFIN which eyes on aggressive growth strategies, opening up branches more than even 1 in towns.. The PBV of LFIN is too high for an investor consider but when we look at other factors, its attractive..

So as a an investment my opinion is COCR and PLC both are valued. The reason for COCR is the growth in micro finance and their revenue growth. Also its to be noted that leasing/hire purchasing section could see a fall back in coming days/months due to vehicle tax hike. That's why the more concentration was put into micro finance sector which in turn a thriving business in SL now..

Amal has posted on Micro-finance in detail above Wink

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Amal Mudunkotuwa wrote:Additionally they set up their Internal Audit team which is a compulsory for any company to grow steadily while stream lining processes and protecting their assets. ( Top Jobs Advertisement ).

You mean all these years this finance company didn't have an internal audit function? Holy ****!!!

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Even some big companies Who earn more than 25b Rev. don't hv a separate Internal audit / Risk departments in sri lanka . They manage those through Accounting and finance departments.
I Dont kw whether COCR had one or not but they wanted more people under IA. Sorry for using the word "set up".

And this was a very small company with 170m odd Owner capital. So they could have proceed with out Auditing. Only in theory we discuss these concepts Like Segregation, Governance. how many listed companies are there with out a risk or IA dpt ?

Any way better we discuss those under a separate topic. Other wise this topic will again be changed with another word like " + common Company practices "...... Rolling Eyes

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
The thing with fast growing companies like COCR and LFIN is that the book values can grow very fast. They can be deemed growth/value companies. LFIN growth has been phenominal if you check the last 3 years.

However COCR is a bit young with the great growth story as the sudden boost happened within 1 year or so. I would be very keen to see their performance in Sept.

But this is one ambitious company if managed well can hit great highs. This Rs 280+ within 3 years appears to be bit far fetched though. PBV will be too high. Even if we considers a high PE of 20 then EPS has to be about 14.

I would be happy if they can report Rs 5-6 eps this year under trying conditions.

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
EPS of 14 is not a big deal for them in 9 months time.

To get EPS of 14 they need a net profit around 3b for the year. As per my analysis and info. this is not difficult with micro financing and the expansions in the line.
( So diversified RICH just touch 2.5b profit after a tremendous effort )
If they go for that big profit according to their strategic plan it will be a good lesson for all other saturate companies.

And also SLSTOCK

Companies like General motors were trading with PE of 90 when it was in the rapid growth phase around 1990 under the CEO Jack Welch.
So we can give a PE of 30-40 for a real growth counter where the PEG effect will reduce the heat.

I thought VFIN will be the Next fastest growing company Be4 the COCR last year Financials.

I would like if any body can Elaborate negative side of the company and its foretasted growth.

If Targets are achieved it should be due to the talent + Luck of Mr. Egodage.

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Firstly when we are speaking about such figures, then it sounds to good to be true. It is definitely going to confuse many.

But then again we had companies like BFL which ran from 15/- to 500/- and LFIN from 20/- to 300/- and even RCL from 35/- to 300/- levels between 2009 and 2011. Take LOLC also as an example.

Slstock,
Yeah an earning of 5-7/- range is moderate and it is acceptable and will be brilliant in this trying conditions. They have to improve their asset value and asset quality must be in check.

Amal,
It will be brilliant if they produce a result like 14/- but it is not going to be easy. Also Microcredit can get defaulted easily and new regulations can come in for such credit. Asset value needs to increase. Policy changes can suddenly dent performance. Also collapse or losses of few other finance companies can trigger negative waves in other companies as well.

When we talk about LFIN, BFL we know it is run by tested individuals and have been around for sometime and people have some trust. Economy should turn towards positive and this can be a favourable aspect for growing companies like COCR!

COCR on the other hand is a new entrant, new management, new goals and targets. So far so good but it can be a risky delight!

I also join Amal and ask some expert view on more negatives about COCR so we can take a fair decision!

Cheers!

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Just an example of LFIN performance over 10 years.

Refer pgs 154, 155

http://www.cse.lk/cmt/upload_report_file/379_1339127593.pdf

Cheers!

Arena


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Dear SlStock & Rapaport ,

I am curious on one thing.

Will EPS of 5-7 be ok for the last 6 month period or for the entire year ( Past 6 + Next 6 )

I would say EPS of 4-5 ok ( 800m - 1000m Profit ) for the past 6 month which will give a 8-10 forward EPS ( 1800m - 2200m ). I is again a 100% growth for PAT........... Am i too optimistic ?

Please note these figures are assumptions and predictions backed by my own findings so do your own analysis and invest...........

Lets wait and see. If we further discuss this becomes a Promotion for some people............

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
I feel after an EPS of 3.78/- last year, a 100% gain (6/- to 8/- EPS this year) will be brilliant in this trying times. This seems possible but we need to watch its results.

I would prefer to see growth of this company moderate at a certain point giving some stability to its growth. Asset value has to catch up big time.

Cheers!

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