Sri Lanka listed company profits up 11-pct, market re-rated down: data

ECONOMYNEXT - Profits at Sri Lanka's publicly traded companies rose 11 percent to Rs225 billion in the 12 months ending September 2016 from a year earlier, while quarterly earnings were up 24 percent to Rs59.4 billion, a research report said.

But the market had steadily re-rated down in terms of price-to-earnings multiples and price-to-book values over the past 18 months.

CAP Partners, a Colombo-based advisory firm, said the top contributors to profits in the September quarter was Ceylon Tobacco (7.5 percent), Hatton National Bank (6.8 percent), John Keells Holdings (6.3 percent), Commercial Bank (6.2 percent) and Dialog Axiata (4.8 percent).

Net interest income was higher at banks, despite rising rates in the quarter, CAL Partners said.

Valibel One, lost Rs3.0 billion in the quarter, down from a profit of Rs836 million last year.

Profits in the telecom, power and energy, oil palms grew, while services, stores and supplies, chemical and pharmaceuticals had fallen, the report said.

In the 12-months ending September 2016, John Keells Holdings brought 6.5 percent of the profits, HNB 6.3 percent, Commercial Bank 6.1 percent, Ceylon Tobacco 5.5 percent and Lanka Orix Leasing Company 4.1 percent.

The 12-month trailing earnings had grown 2.1 percent in the same period last year.

Sri Lanka engaged in a 'Keynesian stimulus' in the first quarter of 2015, expanding state spending and financing the budget deficit through printed money, generating a balance of payments crisis and currency collapse.

The market was trading at a price-to-earnings multiple of 13.7 times, trailing 12 months in the first quarter of 2015, followed by 13.4 times in the second quarter 13.5 times in the third quarter and 13.4 times in the fourth quarter.

The price-to-earnings multiple (the period in years it takes for a theoretical buyer of a company to recover his investment at historical profits) is a reflection of forward expectations.

When investors expect earnings to be stagnant or fall, they will pay a lower price for stock.

The rupee started to collapse in the third quarter and corrective measures to stop money printing were put in place from the third quarter, analysts say.

In the first quarter of 2015, price-to-earnings multiples fell to 12.9 times, in the second quarter it fell to 12.7 times. In the current quarter, it was down to 12.2 times.

The price-to-book value had fallen from 1.55 times in the first quarter of 2015 to 1.41 times in the third quarter of 2016.