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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » LB Finance Interim Results

LB Finance Interim Results

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1LB Finance Interim Results Empty LB Finance Interim Results Wed Jan 29, 2014 9:54 am

SS

SS
Senior Equity Analytic
Senior Equity Analytic
I saw lot of interest to know what has happened to the third largest Finance company in the country during last quarter. I have done a small analysis on the surface and like to share it with you all,

They had a 10.9Bn pawning portfolio last year end and apparently they have done a provision for fall in value of this about 10% which in my opinion is fairly ok. Fortunately they have corrected a fundamental error in accounting which work for their good.
As we see the balance sheet they have reduce drastically the cash component so that those will be utilized for making interest. Also they have reduce the bank borrowings which is fairly high in terms of cost. in the interest rate falling scenario this will work handy.
their NIM has reduced to 7.22 from 9 last year
Cost to income worse from 44% to 56% but if you remove the impact of gold auction loss it will be again 44% so they have maintained consistency in the cost structure against income. The NPL has increase from 3.5 to 4.5 which is a common feature in the industry for 2013/14 financial year as the economy it self had lot of problems so time to come it may recover.
provision for impairment by now has surpass the last year figure of 400Mn redoubtably as the NPL also have gone up. all income/return related ratios will be worse due to 1Bn loss from gold.
So the point to note is the exposure of 10Bn for gold is bit of risky as we never know where the gold price is heading. but end of the day even though the gold price in the world market (paper gold) drops it will not have a impact in same gravity to the local gold prices as they is a high demand for gold in mainly Asian countries like india/SL. All i see is that LB has been perfoming the usual way but an external factor (which we have never thought of) impacted the bottom line.
This is only a limited analysis i have done witin a short period of time we will if time permits for a better one.

[i]These are my personal opinion and i must say i do not hold a single share ion this company at present[/i]

2LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 9:59 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Just fantastic. It is not all that bad as it seems with LFIN. Weaker finco will be in more trouble. ( SFS I like to see).


You answered in detail a question I asked Knock as below
http://forum.srilankaequity.com/t32477-anyone-has-orin#191947

3LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:21 am

SS

SS
Senior Equity Analytic
Senior Equity Analytic
Forgot to mention that reduction in NIM is unable to justify based on the last year maturity analysis. Im sure they have reverse interest accrued on Gold loan from the interest income ( apart from charging the loss in to other in come). we will see....

4LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:36 am

econ

econ
Global Moderator
another dip in profits for this quarter...
so can recent bull run of CSE sustain with negative quarterly reports for 3rd quarter..?

5LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:37 am

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
If gold prices remain stable this year, LFIN will be able to sell some of the defaulted gold after the 01 year cooling period has passed. LFIN can recover defaulted gold loans by selling the gold out in the market.... This is one advantage of Gold backed loans.. LFIN has been reducing its exposure to Gold Loans.

LFIN has become a giant over the last decade and is well poised to swallow a few Cat B finance companies and can strengthen itself and reduce administrative expenses and grab new customers.

09 month EPS is 11.51/- (Annualised 15.33/-, PER 6.5X) and trades at at a PBV of 1.2. Mar 2013 EPS was 16.5/-. The share has a given consistent Dividens and has been giving a single annual dividen last 3 years during June. June 2013 Div was 6.5/-. We can expect a Div of 4-5/- this year with a yield of 4-5%, near Saving accounts rate.

Share currently trades at 100/-, has just over 69 mil shares in issue out of which over 65 mil shares held by Top 20 share holders. Approx 3.8 million shares (5.5%) in public hands and has low liquidity thereby having potential for volatile price movements. DP and related firms own around 77% of the stock. At a price of a around 100/-, the share seems to have formed a base and gentle collection is occurring. In my opinion the share has been trading at this level due to general market psychology and bad loans news...

Given the management is focused, share holder friendly, new opportunities in the form of Mergers and Acquisitions, recovering interest rates and economy, stabilised gold prices, reduced exposure to gold loans, LFIN has immense potential IN MY OPINION from 2H14/15 onwards.

Please research for yourself.

Cheers!



Last edited by Rapaport on Wed Jan 29, 2014 10:52 am; edited 4 times in total

6LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:40 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Econ, market runs ahead of results. Mainly the share that have run so far ran for

a) comapnies that expect good results this quarter
b) on speculation on Fin sector merge.

ex : Before the results came LFIN was expecting it . Isn't a share that has NAV of Rs 82 , EPS of about Rs 17 trading at Rs 100 reasonable? There are so many other share that has not run.





@econ wrote:another dip in profits for this quarter...
so can recent bull run of CSE sustain with negative quarterly reports for 3rd quarter..?

7LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:43 am

econ

econ
Global Moderator
@slstock wrote:Econ, market runs ahead of results. Mainly the share that have run so far ran for

a)  comapnies that expect good results this quarter
b)  on speculation on Fin sector merge.

ex :  Before the results came LFIN was expecting it .  Isn't a share that has NAV of Rs 82 , EPS of about Rs 17  trading at Rs 100  reasonable?  There are so many other share that has not run.





@econ wrote:another dip in profits for this quarter...
so can recent bull run of CSE sustain with negative quarterly reports for 3rd quarter..?
Yes markets run ahead of results expecting better performance. However, after reports are published with negative results, can bull run sustain? Thats my question.. So far this quarter results are not that good for most companies

8LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:46 am

Rapaport

Rapaport
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Econ

When the general economy recovers, business booms and money is given away cheap as loans. This in turn drives the economy creating opportunities for finance companies and banks.

Also the M&A will reduce number of players in the market, reduce competition and more customers to serve, less admin expenses. Things will change positive for these companies after 1H2014 in my opinion.

This will create a good environment for companies like LFIN. However i feel smaller well managed finance companies in Cat A list with less gold exposure can give higher returns.. LFIN however must be on your research radar if interested in finance sector... The stock has given super normal returns before under same management...

Cheers!



Last edited by Rapaport on Wed Jan 29, 2014 10:56 am; edited 2 times in total

9LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 10:54 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
I think many good compamies will start their recovery in March. IF market has already discounted for Dec and expects March to be better, the run can continue.


If majority of the Dec results prove bad( I expect they are , except for some big ones) , it can stall the market for a few days. But how much can it fall?

All bad news will be temporary if the Gov / Big shot wants to push the market. So far we seen institutional interest mainly. Not retail big player pushes. The sign are market needs to move this year even if Dec is bad.






@econ wrote:
@slstock wrote:Econ, market runs ahead of results. Mainly the share that have run so far ran for

a)  comapnies that expect good results this quarter
b)  on speculation on Fin sector merge.

ex :  Before the results came LFIN was expecting it .  Isn't a share that has NAV of Rs 82 , EPS of about Rs 17  trading at Rs 100  reasonable?  There are so many other share that has not run.





@econ wrote:another dip in profits for this quarter...
so can recent bull run of CSE sustain with negative quarterly reports for 3rd quarter..?
Yes markets run ahead of results expecting better performance. However, after reports are published with negative results, can bull run sustain? Thats my question.. So far this quarter results are not that good for most companies

10LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 7:54 pm

worthiness


Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Temporary patches (if initiated) by authorities to keep the market live it would be an exaggerated state of happiness with no foundation in truth or reality. If so, public may take this as another political gimmick in the country.

11LB Finance Interim Results Empty Re: LB Finance Interim Results Wed Jan 29, 2014 8:42 pm

knockknobbler


Manager - Equity Analytics
Manager - Equity Analytics
@worthiness wrote:Temporary patches (if initiated) by authorities to keep the market live it would be an exaggerated state of happiness with no foundation in truth or reality. If so, public may take this as another political gimmick in the country.

Cannot agree more !!!

As I see,  the whole merger mania ....is something like this.

12LB Finance Interim Results Empty Re: LB Finance Interim Results Thu Jan 30, 2014 2:30 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Lets forget all politics and manipulators for a minute.

We must not forget one thing. Over long term , stock markets needs to go up. Period. ( sustainable way) Else the state of country is in a serious mess.

For market to go up, , there are extrernal factors else it will remain bear. Sometime where how we get them is immaterial , but the main thing is it does

Doesn't anyone realize that after 3 years of very poor returns, CSE deserved a further hike

13LB Finance Interim Results Empty Re: LB Finance Interim Results Thu Jan 30, 2014 11:12 am

Backstage

Backstage
Moderator
Moderator
@slstock wrote:Lets forget all politics and manipulators for a minute.

We must not forget one thing.  Over long  term , stock markets needs to go up. Period. ( sustainable way)  Else the state of  country is in a serious  mess.

For market to go up, , there are extrernal factors else it will remain bear. Sometime where how we get them is immaterial , but the main thing is it does

Doesn't anyone realize that after 3 years of very poor returns, CSE deserved a further hike

Doesn't it all boil down to earnings of the listed companies ? the market PER.

14LB Finance Interim Results Empty Re: LB Finance Interim Results Thu Jan 30, 2014 11:29 am

Slstock

Slstock
Director - Equity Analytics
Director - Equity Analytics
Yes it does.  

But if some investor looks at deeper facts on small CSE, market PER is at 16.6 mainly due to JKH, CTC , NEST and some other high caps . Specially CTC , NEST  CARS , BUKI( most CARS group adjusted a lot)  must be having a big impact on PER as they are trading at over 30 PE.

If you take other high caps like COMB, HNB , DIAL ,  HAYL , NDB, SAMP  and so many others they are trading at low PE.

So market has room to go up if people sense on future earnings.   Question to ask , is did we have a Bear and are companies now positioned to earn better for the future.

From what I see most shares are adjusted to Dec results already  if you look carefully.  The shares that went up a lot are the ones expecting good earnings in Dec or the Merger   speculated ones.

So many remaining at PE of 10 and below NAV. TO be frank how many shares in out portfolios moves significantly and how many are still stagnant?



Dubai and JAPan after bull run last year trades at over 22 PE ;-)  







@Backstage wrote:
@slstock wrote:Lets forget all politics and manipulators for a minute.

We must not forget one thing.  Over long  term , stock markets needs to go up. Period. ( sustainable way)  Else the state of  country is in a serious  mess.

For market to go up, , there are extrernal factors else it will remain bear. Sometime where how we get them is immaterial , but the main thing is it does

Doesn't anyone realize that after 3 years of very poor returns, CSE deserved a further hike

Doesn't it all boil down to earnings of the listed companies ? the market PER.

15LB Finance Interim Results Empty Re: LB Finance Interim Results Thu Jan 30, 2014 4:16 pm

rainmaker


Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
With banks and finance firms one has to be careful to ensure the interest income is not accrued income but actual cash income

A loan can stay stagnant with accrued investment income piling on

On the other hand interest income can be the only payment by the customer without the principal being paid off! ...... A bit of a problem in the western banking sector

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