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Discounts galore at the bourse

27 Apr 2022

 
  • Expolanka, Browns, LOLC share prices fall by over 70%
  • Hayleys, Watawala, Royal Ceramics also see significant erosions
  There appears to be significant value for traders on the Colombo Stock Exchange (CSE) right now, as many fundamentally strong and dollar-earning shares are currently trading at steep discounts well below their fair values, following the collapse of the CSE over the past three months, with the All-Share Price Index (ASPI) falling by over 45% after reaching its all-time high of 13,462.39 points on 19 January 2019. Expolanka Holding PLC (EXPO), which was the Cinderella of the last bull run from May 2021 to January 2022, fell to Rs. 99.3 on 26 April 2022, which represents a 75% decrease from its price level of Rs. 389.5 on 19 January 2022. This significant collapse of the counter over the past three months is puzzling, considering that over 90% of its revenue is in US dollars, while the Sri Lankan rupee depreciated against the US dollar by over 69% since the 7 March decision by the Central Bank of Sri Lanka to float the exchange rate.  In the absence of any significant loss of business, EXPO is on track to set another all-time record this quarter in terms of its quarterly revenue. However, EXPO had a resurgence following Tuesday’s (26) announcement of financial assistance by the World Bank, surging by 44.8% yesterday to trade at Rs. 143.75 at market close. Similarly, LOLC Holdings PLC (LOLC) and Browns Investments PLC (BIL), which hold significant US dollar-denominated assets have also fallen by 80% and 76%, respectively, over the period. In the case of LOLC, it was trading at Rs. 1,349 on 19 January and had fallen to Rs. 269.0 by 26 April, before increasing by 21.6% yesterday to Rs. 327.0. Similarly, BIL was trading at Rs. 16.8 on 19 January and fell to Rs. 4.1 as of 26 April, before recovering by 36.6% yesterday to trade at Rs. 5.6 as of market close. Fundamentally strong counters such as Hayleys PLC (HAYL), Royal Ceramics Lanka PLC (RCL) and Watawala Plantations PLC (WATA) have also experienced a significant erosion of value over the past three months. In the case of HAYL, it is the holding company for the largest conglomerate in the country and has positively benefitted from the import restrictions. However, over the past three months, HAYL has fallen by around 64% from Rs. 142.75 on 19 January 2022 to Rs. 51.6 as of 26 April, before recovering 20.7% yesterday to Rs. 62.3.  Similarly, RCL, which has seen its revenue skyrocket over the past two years following the import ban of tiles and its own production expansion, observed a 69% erosion of value over the past three months, as its price has fallen from Rs. 80.0 on 19 January to Rs. 25.1 on 26 April, before recovering by 32.3% yesterday to reach Rs. 33.2 by market close.  Finally, WATA had fallen by  69% to Rs. 54.3 as of 26 April after trading at Rs. 176.75 on 19 January, despite global palm oil prices reaching all-time highs due to the supply crunch caused by the Indonesian export ban. WATA recovered strongly yesterday by 26.9% to reach Rs. 68.9 by market close. Meanwhile, CT CLSA Securities in a report noted that the bourse is nearing stability amid decade-low bargains on offer. It added that valuations are now at a decade’s low amid recent economic and market adjustments.  It noted that during the discussions last week with the IMF, the authorities were entrusted to commence the debt sustainability programme whilst appointing lawyers and getting creditor approvals for the proposed programme.  “A proposed external debt restructure programme could also benefit from a long lease/privatisation of certain assets as bridging finance in the immediate near term. Further, Sri Lanka should look at increasing Value Added Tax and income taxes, in general, to increase government revenue to GDP by +500 bps to 13% levels to contain fiscal drain, with a targeted cash transfer programme to reduce the economic shock on extremely vulnerable segments amid mounting price pressures in the economy,” it stated.  

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