Colombo bourse corporate earnings have soared 126% year on year to Rs121.1 billion in 2010 and it will mirror this year as well, analysts say, adding that it would regain its buoyancy after April.
When sampling 221 listed firms out of 247 in the Colombo Stock Exchange (CSE), analysts say that the banking, finance and insurance sector (in this sample) contributed roughly 27% last year to the overall corporate profits of the CSE. “The conglomerates contributed 18% to this,” Danushka Samarasinghe, Director TKS Securities told the Business Times.
He said that the highest net profit growth rates were witnessed amongst the hotel, motors and plantation sectors. Further since the end of war quarterly corporate earnings have grown at 28% Compound Annual Growth Rate (CAGR) during last year. ”This was mainly driven from domestic consumption ahead of any benefits from the recently started investments and we will see this happening this year as well,” Mr. Samarasinghe added. Last year’s net profit has increased 81% year on year to Rs 9.4 billion in the fourth quarter of 2010.
Mr. Samarasinghe noted that the market has edged down to 18.6 times multiples in current earnings by end 2010 down from the 20 times level which is widely believed is the sustainable multiple for the re-rated market since the end of war. “But the mid cap retail drive had swiftly taken up the market multiple to 20.2 times in 2011 before the market experienced some correction during the days after March 7,” he said.
Nadun Jayatilake, CEO SMB Securities said that the March price to earnings ratio in the CSE is at 15 and that it is showing a ‘huge’ buying side. “The hotel, motors and plantation sectors and also the banking sector will see growth by at least 50%,” he added.
Mr. Samarasinghe noted that the banking, finance and the insurance sectoral earnings were up 70% year on year in the last quarter of 2010 and up 87% during 2010 which was broadly backed by the favourable macro economic situation and the monetary policy adopted by the Central Bank.
“Last year’s fourth quarter at Commercial Bank, Sampath Bank, and NDB Bank led the banking sector earnings backed by loan book expansion, improving asset quality and reducing funding costs. This year too we can expect a repeat performance,” he said.
Last year, the insurance sector earnings were driven by Ceylinco Insurance, AVIVA NDB Insurance and Janashakthi Insurance.