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Colombo Bourse is seeing a bull run on what some are claiming as the ‘blue eyed” Browns Investments PLC (BIL) catapulting the loss making diversified entity to fifth most valuable listed company last week, up from ninth in December and 19th in November.
Last week which was the first trading session for 2021, BIL saw heightened interest. Around 2.15 billion shares (nearly 15% stake) changed hands via 37,629 trades for Rs. 12.67 billion. The price set a new 52-week high of Rs. 7.10 before closing at Rs. 6.50 or up Rs. 2.20 or 51% up from the previous week. Net asset value per share is Rs. 2.51 as at 30 September 2020, down from Rs. 3.48 as at 31 March 2020.
BIL contributed 72% to the ASPI's gain last week and 38% of the turnover.
In the quarter ended on 31 December 2020, BIL saw 4.16 billion of its shares changing hands via 61,786 trades for Rs. 14.8 billion. It closed the quarter at Rs. 4.30 up by 59% after hitting high of Rs. 4.50 and a low of Rs. 2.20. In Value BIL is behind Dialog whilst the top three are CTC, JKH and Distilleries.
The momentum on BIL emerged in December when 3.43 billion shares (nearly 24% stake) changed hands via 44,676 trades for Rs. 13 billion between a high of Rs. 4.50 and a low of Rs. 2.50 before closing at Rs. 4.30 but couldn’t surpass the 52-week highest of Rs. 5.80. Last week of December saw 207 million BIL shares changed hands via 4,056 trades for Rs. 863.6 million with price up 40 cents to Rs. 4.30.
In November and October interest was less evident though substantial. In November only 300 million shares changed hands via 6,430 trades for Rs. 757 million between a high of Rs. 2.70 and a low of Rs. 2.30 before closing at Rs. 2.50. In October BIL saw 433.7 million shares changing hands via 10,680 trades for Rs. 1.09 billion between a high of Rs.2.90 and a low of Rs. 2.20 before closing at Rs. 2.40.
BIL’s performance shocked many who ignored it whilst the Colombo Stock Exchange (CSE) fired a letter seeking clarification from the company. In response BIL said there is no undisclosed price sensitive information.
Analysts said frenzied trading and interest on BIL was purely speculative whilst others said it had been underperforming given its fundamentals. However in the second quarter BIL suffered a pre-tax loss.
The six-month ended 30 September BIL suffered a pre-tax loss of Rs. 2.5 billion as against a profit of Rs. 11 billion. In the second quarter loss was Rs. 312 million, though lower in comparison to a loss of Rs. 1.7 billion a year earlier. Revenue in 1H rose by 52% to Rs. 3.7 billion and for the second quarter by 100% to Rs. 2.5 billion.
Part from being strategic investment arm of LOLC Holdings, BIL has interests in Investments, Leisure and Travel, Construction/Manufacturing and Trading, Plantation, Power, and Real Estate. Investments, leisure and travel and plantations made pre-tax losses in the second quarter. The only best performer was construction, manufacturing and trading which posted a turnaround with Rs. 222.6 million pre-tax profit as against Rs. 19 million a year earlier. Other businesses remain profitable though low in value.
However BIL has retained earnings of Rs. 4.6 billion as at 30 September 2020 whilst at Group level the figure is Rs. 14 billion, down from Rs. 16 billion as at 31 March 2020.
Brown and Company and related parties control nearly 75% control in BIL though some claim it is only 52% BIL public float is 16% or 2.3 billion held by 19,381 shareholders.
One speculation was there could be another Rights Issue which those closely monitoring companies ruled it out. In July last year BIL had a two for one Rights at Rs. 2 each (9.6 billion shares raising Rs. 19.2 billion) increasing its number of shares in issue to 14.37 billion.
Funds raised were to settle its debt of which Rs.14.3 billion was for related party debt and balance Rs. 4.8 billion to take up Rights Issue of Browns Hotels and Resorts Ltd., (BHRL), a 100% subsidiary of BIL. BHRL has invested in several leisure projects both in Sri Lanka and Maldives, which were initially funded through BHRL borrowing obtained from the Group Companies.
Separately, Eden Hotels, a subsidiary of BIL also recently raised Rs. 4.2 billion via a Rights Issue. Eden despite facing serious loss of capital in mid-December bought 53.48% stake (or 42.735 million shares) in Serendib Hotels PLC for Rs. 607 million and a mandatory offer to acquire minority stake at Rs. 14.20 is pending.
The biggest breakthrough for BIL, which some link to recent investor frenzy, was announced mid-last month when it signed a MoU with China Engineering Harbour Corporation (CHEC) which is developing the Colombo Port City.
BIL entered into a momentous MoU to partner with CHEC to commence the Colombo International Finance Centre (CIFC) Mixed Development Project in the Colombo Port City (CPC). This is a milestone project comprising a land area under development of 6.8 hectares with an investment value totalling $ 1 billion, representing important long-term implications on the economic growth of Sri Lanka, and has been accordingly declared a Strategic Development Project (SDP) under the Strategic Development Projects Act No. 14 of 2008.
With two companies at the helm with substantial international expertise as well as a strong commitment towards social responsibility, this project will drive long-term sustainable development and create quality employment opportunities across sectors, a BIL disclosure to the CSE on 17 December said.
The CIFC Mixed Development Project will be piloted over two phases, whereby BI is partnering with CHEC for Phase One via the incorporation of a Special Purpose Vehicle (SPV) company. The total investment in Phase One amounts to $ 450 million with a buildable land area spanning 3.06 hectares, which is leased from CHEC Port City Colombo Ltd., to the new SPV that will be jointly owned and managed by BI and CHEC.
“This will be a significant undertaking involving the construction of one residential apartment tower, one serviced apartment tower, one office tower and a retail podium on the ground floor,” BIL disclosure added
Ascending up to 39 floors, the total Gross Floor Area across the investments will exceed 160,000 square metres, with residential and serviced apartments encompassing an area of over 88,000 square metres inclusive of parking, retail space of 24,000 square metres, while the office complex will have a cross area of over 48,000 square metres.
Whilst benefits from the breakthrough deal with Port City is in the long term, the recent play on BIL is because it had under performed in the early part of 2020 bull run (after rumour of an impending sale fuelled a major demand but later fizzled out) and the stock is relatively low-priced.
Nevertheless, some expect a degree of profit taking on BIL this week which will put pressure on its price. If late comers outnumber the sellers the price will go up, others said.
