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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » What will happen PLC.N0000 Price during Jan & Feb

What will happen PLC.N0000 Price during Jan & Feb

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smallville


Associate Director - Equity Analytics
Associate Director - Equity Analytics
SMLL

Total shares as at 31st December 2012 - 74,576,979
Parent company PLC holds - 67,455,022 (90.45%)
Current price - 41
Stated Capital - Rs. 1,580,861,658/-

As of 31-12-12 financials;
NAV - 26.14
9 months EPS - 3.33
Annual EPS (projected using normalised eps of 1.11 per qtr) - 4.44,

At Current price - 41, this trades at P/E of 9.23 (41/4.44)
PBV = 1.57

PLC

Total shares as at 31st December 2012 - 1,635,000,160
Parent company People's Bank holds - 1,172,766,337 (75.18%)
Current price - 13.60
Dividend (0.75)(FY 12/13) -Rs. 1,170,000,120/-
Stated Capital - Rs. 12,958,000,800/-

As of 31-12-12 financials;
NAV - 11.29
9 months EPS - 1.24
Annual EPS (projected using normalised eps per qtr) - 1.65

At Current price - 13.6, this trades at P/E of 8.24 (13.6/1.65)
PBV = 1.20

When PBV is considered both are trading at an attractive price now because below 2X of PBV for finance companies are considered to be of worthy.

However, announcement of PLC amalgamation with SMLL and subsequent offer of 3 PLC shares for 1 SMLL share means,
74,576,979 SMLL shares should be multiplied by 3 making it 223,730,937 PLC shares.
But they said minority share holders, so accordingly 7,121,957 SMLL shares will have to be converted to PLC shares
[Total shares - parent shares - (74,576,979 - 67,455,022) = 7,121,957]

Which means new PLC shares - 7,121,957 x 3 = 21,365,871 will be added to the existing 1,635,000,160 shares.


What will happen to the Stated capital and share price in the market?

Literary speaking, Stated Capital of Rs. 12,958,000,800/- of PLC (as at 31st December 2012) represents 1,635,000,160 shares.

Similarly Stated Capital of Rs. 1,580,861,658/- of SMLL represents 74,576,979 shares.

So new stated capital should be;
(12,958,000,800 + 1,580,861,658) - 14,538,862,458.

But the above represents how many shares now?

Is it 1,635,000,160 + 21,365,871 = 1,656,366,031 (1.65 Bil)????

Then what will happen to the parent shares?

Is this mean somewhere around 12-12.70 is the new market share price of PLC??????????

Hope someone can clarify where the share price should stand after the amalgamation....

raptor


Manager - Equity Analytics
Manager - Equity Analytics
Stated capital is just the face value of the shares times the amount of shares outstanding, it doesnt have anything to do with market value of a share.

One way to look at it is SMLL paid 3.75 as a dividend last year, PLC paid 0.75 so if we times that by 3, SMLL shareholders will get 2.25, which is obviously far less so they seem to be getting a bad deal.

Assuming SMLL's EPS is 4.44 (I am not a fan of normalising, I prefer using LTM but cannot be asked to go look for the numbers), PLC will be buying 9.21% of SMLL earnings which it doesn already own which is an EPS of 0.41 per an SMLL share. This needs to be divided by 3 given PLC is paying 3 shares for 1 in SMLL. So its adding 0.13 in earnings to each PLC share which corresponds to a total EPS of 1.76 post the acquisition for each PLC share (I have adjusted for the increased PLC shares given to SMLL shareholders). If you assumed fair PE is 8.24 share price should be 14.54. Obviously this valuation depends on what one considers a fair PE is.

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@small: when you calculated the new number of shares you took:

1,635,000,160 + 21,365,871

This includes, old PLC shares and the newly issued PLC shares (for minority share holders of SMLL)

But don't you have to add the old SMLL shares as well (74,576,979) since after the merger, all of those shares will also belong to the newly formed company? (I'm not sure of this - haven't been in touch)

Cheers!

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
OK, adding SMLL shares into the total doesn't seem right - since the two shares have different price levels. My bad.

Cheers!

raptor


Manager - Equity Analytics
Manager - Equity Analytics
Nope I am not adding those as they are already owned by PLC, they arent going to issue new shares to themselves. If they issue themselves shares for those then who is going to own SMLL? they will be swapping their holding in SMLL for PLC shares. All they are doing is buying out the 9% they dont own and therefore they will hold 100% of SMLL with no minority shareholders. SMLL will become a private subsidiary of PLC or will cease to exist at all and the equity of SMLL will be added to that of PLC.

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@raptor: so what'll happen to current SMLL share holders? will they be made a mandatory offer at some point?

I'm totally blank on what's been going around. Just looking for an easy way to find out the "fair value" of PLC once this deal is done... Smile

Cheers!

raptor


Manager - Equity Analytics
Manager - Equity Analytics
Yes, thats the idea, the offer will be 3 PLC shares for 1 SMLL share. It has to be ratified at the PLC AGM, I expect the offer in April. Going to get a fair chunck of PLC shares as a result!

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
OK, I think I get it now. Thanks for the explanation Smile

13.50 x 3 = 40.50 (close to current SMLL price)

So, SMLL would be good to collect below 40.50 as it stands now. However, if PLC.N goes further down, value of SMLL should also go down... (given the conversion).

I'm thinking of starting to collect PLC.N directly but slowly. Would be fantastic if it comes further down... Twisted Evil

As for the fair value, I guess both PLC.N and SMLL.N are fairly valued at current prices. So, 13.50 would be an OK price to collect PLC.N (this is just a rough idea). But I'd wait a bit longer to start collecting PLC.N given the existing momentum. Once PB completely stops buying, the price of PLC.N may come further down (just a guess).

Cheers!

klpfernando


Manager - Equity Analytics
Manager - Equity Analytics
IF you value PLC and SMLL are very attractive.(smallvilla has done a good valuation above-thanks for that)But my biggest concern for these two shares are, their prices went up only because of their parent companies increasing their holdings.
and also their earnings coming down.I don't think PLC will buy more SMLL share from the market.IF peoples bank stop buying into PLC ,prices of PLC will come down to Rs11-12(I think)

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
Based on today's closing prices, the Market Capitalization of PLC.N* (the merged entity) would be Rs 24.274 billion.
This would make it among the 20 largest companies in Sri Lanka, bigger than even C T Holdings or NDB or Hayleys.

Based on 31.12.2012 Balance Sheets of both companies, the NAV per share of PLC.N* would be Rs 10.97.
Based on weighted average market price of Rs 13.61, the Price-To-Book Ratio would be 1.24x.
Earnings Per Share would be approx Rs 1.97 and P/E Ratio would be 6.90x.


Here's a hint for the arbitragers: You could have locked into PLC.N* at less than Rs 13.00 today, which is a decent price - despite klpfernando's valid concern. How? Remember the Dividend impact (SMLL, Rs 2.25) while determining each company's fair price. It's not straightforward 3:1...

raptor


Manager - Equity Analytics
Manager - Equity Analytics
@Antonym wrote:Based on today's closing prices, the Market Capitalization of PLC.N* (the merged entity) would be Rs 24.274 billion.
This would make it among the 20 largest companies in Sri Lanka, bigger than even C T Holdings or NDB or Hayleys.

Based on 31.12.2012 Balance Sheets of both companies, the NAV per share of PLC.N* would be Rs 10.97.
Based on weighted average market price of Rs 13.61, the Price-To-Book Ratio would be 1.24x.
Earnings Per Share would be approx Rs 1.97 and P/E Ratio would be 6.90x.


Here's a hint for the arbitragers: You could have locked into PLC.N* at less than Rs 13.00 today, which is a decent price - despite klpfernando's valid concern. How? Remember the Dividend impact (SMLL, Rs 2.25) while determining each company's fair price. It's not straightforward 3:1...

How did you get a combined market cap of Rs 24bn? PLC already owns 91% of SMLL so its already built into its share price. The completely merged entity would be worth PLC now +9% of SMLL's current market cap, i.e what it doesnt already own which would be around Rs270m which means the combined entity is worth Rs 21.5bn.

You cannot just add them together as PLC already owns 91% and therefore is consolidating SMLL into its accounts on line by line basis rather than under the equity method given their holding. You are almost bouble counting here given that 91% of SMLL is already included in PLC's accounts.

Also where did you get the EPS of 1.97? I got 1.73 as I have shown above.

smallville

smallville
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@anubis wrote:OK, I think I get it now. Thanks for the explanation Smile

13.50 x 3 = 40.50 (close to current SMLL price)

So, SMLL would be good to collect below 40.50 as it stands now. However, if PLC.N goes further down, value of SMLL should also go down... (given the conversion).

I'm thinking of starting to collect PLC.N directly but slowly. Would be fantastic if it comes further down... Twisted Evil

As for the fair value, I guess both PLC.N and SMLL.N are fairly valued at current prices. So, 13.50 would be an OK price to collect PLC.N (this is just a rough idea). But I'd wait a bit longer to start collecting PLC.N given the existing momentum. Once PB completely stops buying, the price of PLC.N may come further down (just a guess).

Cheers!


My thinking is SMLL is gonna get de-listed after April.. Hence they offer 3 PLC shares for 1 SMLL shares, so shareholders of SMLL gets their shares exchanged to PLC.
So in my opinion you should collect PLC, probably below 13 (if possible).

anubis


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@small, antonym: Thanks a bunch for the input! Smile

Cheers!

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
@raptor wrote:How did you get a combined market cap of Rs 24bn? PLC already owns 91% of SMLL so its already built into its share price. The completely merged entity would be worth PLC now +9% of SMLL's current market cap, i.e what it doesnt already own which would be around Rs270m which means the combined entity is worth Rs 21.5bn.

You cannot just add them together as PLC already owns 91% and therefore is consolidating SMLL into its accounts on line by line basis rather than under the equity method given their holding. You are almost bouble counting here given that 91% of SMLL is already included in PLC's accounts.
@raptor: You are right; I was double counting. The Market Capitalization would be Rs 21.508 billion.
I am sorry for the wrong calculations...

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