Bank/Fin Merger hype Warning

Member/public:

I thought I should warn as a public service.

There is revival in the sector/market after the Bank/Fin merger requests by Central Bank.

For what it is worth make Hay when the sun is shining.  
As a plus point, it has helped/will help  some undervalued shares to raise it head from their multi year gloom.

Remember when a fundamental goes up there is justified reason for it to hold value as there is an intrinsic value attached.

BUT at the same time ,  some weeds will try to raise its head  along side  the good fortune of these cash crop plants.
It is called a free ride.

Now if you chase after speculative weeds that unrealistically goes up in price and  if you buy/hold  them at the wrong time, you will be held high and dry.

Ex   :   GSF  which is trading at about 30  times its  NAV .  A share that is worth about Rs 30 max is still trading at Rs 450!!!
If someone want to buy/merge with GSF, wonder whether they are ready to pay Rs 450 for Rs 15 NAV company!
But the top 3 holders of the company are interesting so don;t know what will happen.

I warned about another Fin share in the forum if you search ( not to mention the multiple warning on CIFL when at Rs 6-9).

There are/will be  more . So be educated and careful.

SL stock I was thinking the same no confirmation yet on who's buying who or selling out but fin shares are booming . Can you point some of the good ones out as mentioned by you ? as mentioned earlier I want to get in to some shares on Monday weighing my options. I will do my own research as well. Give me a few to have a look .

Did you not follow the/my other thread on share discussions.

Aubrey Perera wrote:SL stock I was thinking the same no confirmation yet on who's buying who or selling out but fin shares are booming . Can you point some of the good ones out as mentioned by you ? as mentioned earlier I want to get in to some shares on Monday weighing my options. I will do my own research as well. Give me a few to have a look .

Not all buddy !!! Can you post them here ???

This is a seprate thread for the opporsite purpose.

You can go refer to my other thread where share discussions/hint are given me/other members.

Aubrey Perera wrote:Not all buddy !!! Can you post them here ???

Yeah I agree with you, If you compare share prices of Finance sector companies from DEC to NOW almost all of them appreciated around 30%-40%, surprisingly some of them have more than 100% gains. Anyway personally I believe that this is a God given chance for us to get rid off from Finance companies to good Fundamental counters, I believe everyone should get their hand off from these counters. "Always do what other people doesn't do at trading"!! Happy Trading

welcome to the forum.

But we should also note there are strong/solid ones which has not moves much and trading at low PEs /NAVs that can be long term investments.

Lawwa wrote:Yeah I agree with you, If you compare share prices of Finance sector companies from DEC to NOW almost all of them appreciated around 30%-40%, surprisingly some of them have more than 100% gains. Anyway personally I believe that this is a God given chance for us to get rid off from Finance companies to good Fundamental counters, I believe everyone should get their hand off from these counters. "Always do what other people doesn't do at trading"!! Happy Trading

Sorry mate can't seem to find them. What are these strong solid ones you say ? PM me if you don't want to name them on this thread.

Or tell me how do I find the discussions as you have mentioned above ? in the search section I can't seem to locate ??

Thx SLSTOCK!
I appreciate your words and warning......!!!
I too agree about the facts you mentioned....   

@Aubrey, VFIN didn't move. Showed some intrest during last hour. Actually I bought after selling COCR

tnx admin

im sure there will be millionars tnx to cbsl.

Sl stock found what I was looking good stuff stocky boy keep it up ....Seek good thing I guess. Vfin Lifin vone rather quiet when you compare others in the sector.

Aubrey Perera wrote:Sl stock found what I was looking good stuff stocky boy keep it up ....Seek good thing I guess. Vfin Lifin vone rather quiet when you compare others in the sector.

Vone run very close.

hi ,this is my first post in this forum. Hope these thoughts of other members will be informative for my decision making.

i entered to the mkt yesterday.my first buyin was sfin at 13.30 as my broker recommended.he was so confident that it will pass 20 soon. so bought 25000.
love you everyone..

wandi wrote:hi ,this is my first post in this forum. Hope these thoughts of other members will be informative for my decision making.

i entered to the mkt yesterday.my first buyin was sfin at 13.30 as my broker recommended.he was so confident that it will pass 20 soon. so bought 25000.
love you everyone..

Wecome wandi, your expectation on CSE want die due to brokers advice.

wandi wrote:hi ,this is my first post in this forum. Hope these thoughts of other members will be informative for my decision making.

i entered to the mkt yesterday.my first buyin was sfin at 13.30 as my broker recommended.he was so confident that it will pass 20 soon. so bought 25000.
love you everyone..

Welcomem wandi!
I think ur entry is OK but close to GOOD....
But b very careful..... not in loving to broker..... but in listening to their advice.....
its is their job.... this is your part time work....
Always think twice when u invest your money.....
lucky u entered to market when it is in up trend.....
but it may not stay in up trend so long.....
so listen to many other people....
there some good and nice and intelligent people in this forum... but not all OK
hee hee I am also not in that group....   
Have a good and pleasant journey in CSE!     

Btw, here is hidden fact I forgot to mention about GSF.

IF GSF adjusts in price massively, ASI is going to take a hit.
So there is Political balance need to figure.

Will there be "relaxations" to accommodate GSF I don;t know.

How GSF is handled will be interesting to watch in this merger hype.

All i know is this,
somehow 1.2 Bil asset company is trading in the market for over 10 Billion!
While I see a 29 billion asset company is trading at 2.7 Billion!!!

Wonder of CSE.

Still fundamental are not showing that much at CSE ( though very much better than 2011)


.

slstock wrote:Btw, here is hidden fact I forgot to mention about GSF.

IF GSF adjusts in price massively,  ASI is going to take a hit.
So there  is   Political balance  need to figure.

Will there be "relaxations" to accommodate GSF I don;t know.  

How GSF is handled will be  interesting to watch  in this merger hype.

All i know is this,
somehow 1.2 Bil asset company is trading in the market for over 10 Billion!
While I see a 29 billion asset company is trading at 2.7 Billion!!!

Wonder of CSE.

Still fundamental are not showing that much at CSE ( though very much better than 2011)


.

Its strange. To keep GSF at current level some one must pour in money or undertake related party transactions again costing money for transaction costs etc? ?Where this money come from.

Looking at Assets/ Capital ( and if this CB regulation is serious with no loop holes for companies like GSF) they have no option but to merge or sell out. s

Related party share transfer will not do right?

K.Haputantri wrote:

slstock wrote:Btw, here is hidden fact I forgot to mention about GSF.

IF GSF adjusts in price massively,  ASI is going to take a hit.
So there  is   Political balance  need to figure.

Will there be "relaxations" to accommodate GSF I don;t know.  

How GSF is handled will be  interesting to watch  in this merger hype.

All i know is this,
somehow 1.2 Bil asset company is trading in the market for over 10 Billion!
While I see a 29 billion asset company is trading at 2.7 Billion!!!

Wonder of CSE.

Still fundamental are not showing that much at CSE ( though very much better than 2011)


.

Its strange. To keep GSF at current level some one must pour in money or undertake related party transactions again costing money for transaction costs etc? ?Where this money come from.

K.Haputantri wrote:

slstock wrote:Btw, here is hidden fact I forgot to mention about GSF.

IF GSF adjusts in price massively,  ASI is going to take a hit.
So there  is   Political balance  need to figure.

Will there be "relaxations" to accommodate GSF I don;t know.  

How GSF is handled will be  interesting to watch  in this merger hype.

All i know is this,
somehow 1.2 Bil asset company is trading in the market for over 10 Billion!
While I see a 29 billion asset company is trading at 2.7 Billion!!!

Wonder of CSE.

Still fundamental are not showing that much at CSE ( though very much better than 2011)


.

Its strange. To keep GSF at current level some one must pour in money or undertake related party transactions again costing money for transaction costs etc? ?Where this money come from.

GSF monthly share trading is just half million ruppees,

for 6m annual share trading brokerage is just above Rs.60,000.

very low cost to maintain at 10b market capitalization.

AMF also having the similar issue isn't It?

Well AMF is trading around Rs 350. NAV is around 126 , and EPS will be over Rs 25. So it is trading rather fairly compared to some. Public holding is only about 10% though.

Gaja wrote:AMF also having the similar issue isn't It?

Yes, also last year final divided and this time interim one also good, need to wait and see what they intend to do in the future

@slstock - timely post. hype is the right word. after a long time, brokers have a "merger" story to sell and the retail traders are speculating on a favourable outcome to all this. so far so good as many of the lower rung finance companies have gone up significantly and traders have been rewarded.

The thing to keep in mind is these combinations / mergers are like arranged marriages (almost by force ?) and not love marriages. this is been done mainly to protect deposit holders of the weaker institutions. so stronger institutions will have to absorb weaker institutions, by way of share swap or cash, and based on the nett assets principal. since many of the lower tier finance companies are trading at a premium to net assets, the shareholders of these may get a rude shock when & if these mergers take place.

also note that it is possible to pay a higher price than nett assets by recognising goodwill i.e. paying a higher amount for synergy, branch network, locations, new markets etc. In COCR case, the private placement is done at nearly 3 times NAV but at a relatively low P/E (7 times).  

another possibility is that the stronger institutions paying a higher than nett assets amount via share swap / cash and are compensated by tax incentives by the central bank, for doing so.
in some instances like (TFC) for eg, with negative nett assets, goodwill maybe recognised or revaluation of real estate portfolio done and incentives offered to potential buyer.  

it is no point paying a premium on net assets on weaker finance institutions unless their earnings growth or p/e multiple warrants it. paying a premium for a weak finance company trading at a high Price to Book ratio and high P/E multiple and hoping to gain in a merger with a stronger bank / finance company (through share swap or cash mandatory offer) may be wishful thinking or pure speculation.

ironically, some of the more fundamentally undervalued companies in this sector, i.e. the perceived stronger institutions, like CFIN, ALLI, CDB, LFIN, VFIN, PLC etc have not seen much movement (CDB maybe exception to the case).  

This may also not be the best year for banks / finance companies due to declining interest rates and the fact that many locked onto fairly high borrowing rates via debentures, causing a mismatch in their borrowing / loan portfolios.

i am afraid a mini bubble in this sector is being / will be created, led by the retail speculative, broker herded crowd  and will burst when expectations are not met in reality. this could negatively impact the overall market, as we have seen before.

I am still not sure who is behind the foreign established fund who wants to buy COCR ;-) . There is much rumors behind COCR and management. I won't mention such details as I don't know the truth.,


Anyway , like you said, it is okay for aquirer to pay multiple times NAV, if is it a solid company making healthy cash profits, trading at good PEs. Else some of these other shares are making runs to be over valued and will be left high and dry with need set of traders who buy high in trouble.

I am still wondering what will happen to SFS ( here is another shaky one , which I hinted above) if Pawnees ( not an Indian Tribe) default!! Even scared to look at their portfolio with massive amount of Loans given on Gold , and what will happen if people default. This merger might be a god send for them.

Sadly so far Category A companies , ( except COCR) which really deserves a run, has not increased in price so far. Some of them have room to double in price fundamentally but .....


Btw, I thought CB already said there will be Tax incentives for Aqcuirer companies.

Your observation on Debentures should be noted. Specially if small companies who gave debentures at high rates in bog amounts need to be very careful.

This merger has + and -. So be educated folks.



[quote="The Alchemist"].

The Alchemist wrote:@slstock - timely post. hype is the right word. after a long time, brokers have a "merger" story to sell and the retail traders are speculating on a favourable outcome to all this. so far so good as many of the lower rung finance companies have gone up significantly and traders have been rewarded.

The thing to keep in mind is these combinations / mergers are like arranged marriages (almost by force ?) and not love marriages. this is been done mainly to protect deposit holders of the weaker institutions. so stronger institutions will have to absorb weaker institutions, by way of share swap or cash, and based on the nett assets principal. since many of the lower tier finance companies are trading at a premium to net assets, the shareholders of these may get a rude shock when & if these mergers take place.

also note that it is possible to pay a higher price than nett assets by recognising goodwill i.e. paying a higher amount for synergy, branch network, locations, new markets etc. In COCR case, the private placement is done at nearly 3 times NAV but at a relatively low P/E (7 times).  

another possibility is that the stronger institutions paying a higher than nett assets amount via share swap / cash and are compensated by tax incentives by the central bank, for doing so.
in some instances like (TFC) for eg, with negative nett assets, goodwill maybe recognised or revaluation of real estate portfolio done and incentives offered to potential buyer.  

it is no point paying a premium on net assets on weaker finance institutions unless their earnings growth or p/e multiple warrants it. paying a premium for a weak finance company trading at a high Price to Book ratio and high P/E multiple and hoping to gain in a merger with a stronger bank / finance company (through share swap or cash mandatory offer) may be wishful thinking or pure speculation.

ironically, some of the more fundamentally undervalued companies in this sector, i.e. the perceived stronger institutions, like CFIN, ALLI, CDB, LFIN, VFIN, PLC etc have not seen much movement (CDB maybe exception to the case).  

This may also not be the best year for banks / finance companies due to declining interest rates and the fact that many locked onto fairly high borrowing rates via debentures, causing a mismatch in their borrowing / loan portfolios.

i am afraid a mini bubble in this sector is being / will be created, led by the retail speculative, broker herded crowd  and will burst when expectations are not met in reality. this could negatively impact the overall market, as we have seen before.