Aitken Spence (SPEN) is the fourth largest listed conglomerate on the Colombo Bourse with a market capitalization of USD337.8 mn trading on 42% discount to the more liquid John Keells Holdings (JKH.SL:LKR240.1) (possibly due to the liquidity premium which JKH commands) and a 25% discount to the Diversified sector, which trades on 16.2X (4 quarterly earnings).
SPEN which has exposure to Tourism, Logistics, Power generation, Plantations and other services generates 83% of its net earnings from the chief contributing Tourism sector whilst still trading below the Leisure sector with a 24% discount. The group currently yields a ROE of 11.4% (FY14) whilst earnings which grew at 16% CAGR, FY10-FY14 are expected to grow c.16% YoY in FY15E-FY16E. We forecast net profit of LKR4,247.6 mn for FY15E (up 15.7% YoY) and LKR4,932.9 mn for FY16E (up 16.1% YoY). The stock trades on 10.4x forecast FY15E net profit and 8.9x estimated FY16E net profit whilst trading at a discount of c.18% to its sum of the parts valuation of LKR127.4.
Therefore we maintain our recommendation BUY.