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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Are Banking Stocks Attractive?

Are Banking Stocks Attractive?

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1Are Banking Stocks Attractive? Empty Are Banking Stocks Attractive? Tue Feb 26, 2013 10:58 am

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics

Most of us are influenced by the past. SL is no more in hot seat. We can not expect it to grow at 8+%. Growth itself has comedown. lots of political muddling internationally ( whether you agree or not). Revival of growth into 8+% region is not a trivial task as Cabraal thinks. Moreover, possibly , our investment component of GDP will start decelerating - this might slightly grad GDP. inflation is yet out of control.Printing press is working hence currency is under another round of fresh depreciation. Foreigners will not forever by our treasuries. so, you have to keep in mind about more down to earth growth, but it will be yet attractive...

PE of the market has to be in line with the growth of economy, just like standalone PE is symbol of expectation about particular company's future growth and return on its reinvested profits. You can not think of 16+ PE for Colombo any longer.

Banks PE is not a good indicator. SL is hitting the bottom of its investment cycle. if you have observed would realized that both banks & investment companies have reported high increase in provision for last 4 quarters. this means that NPL is running high with deceleration of growth. More over, CBSL is also usually badly managed , putting lots of unnecessary strain on SL banks specially in bad times.

What is best for banks PBV while earning & its growth also should be loking at carefully. on PBV terms, only HNB NV is trading in sensible range.COMB usually trades above the market, but keep in mind its not the same COMB that we had usually. It's run by relatively immature board and GOSL influence also should be factored. Hence moderate premium should be justified. HNB after capital gains from share sale( if they dont payout entirely) trades at attractive PBV, but this is due to one off factors, still worth at current price. Possibly, its the only bank trades below its NPV ( after the sale).

Sampath has catch up with rest of other and you see the growth has stalled.

This is NOT recommendation, on this terms most attractive is NDB & HNB NV.

2Are Banking Stocks Attractive? Empty Re: Are Banking Stocks Attractive? Tue Feb 26, 2013 4:23 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics

Banks have exclusive access to the expanding money supply and hence are not as constrained. This is via the exchange rate and interest rate intervention by the CB.

CB prints money and takes it back via repo. Money in overnight repo is money not on the street. <- it's not in your pocket.

If the CB allows the banks to lend beyond 19% credit growth YoY, then all banks will sell down on govt securities and flood the market with credit. <- money in your pocket.

Credit is profit for the bank.

So banks are different to everyone else.

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