Despite bull run market still trading at attractive valuations – Softlogic Stockbrokers

Despite the bull run during the last few weeks, the market is still trading at attractive valuations amongst the emerging market and is duly recognised by the foreign investors with foreign inflow pouring into the market. With value counters trading in abundance coupled with an expected strong growth in earnings in the following year further strengthens market valuations to rate the market with a BUY.

Following a harsh slump the bourse underwent over the recent months with the haunting effects of strict regulatory reforms, the CSE has been re-rated as an eye catching investment destination. Foreigners classed the CSE as too expensive following the bubble blast in 2011. Many stocks were in an over run situation and were in desperate need for a correction which kicked off during latter 2010 till mid-2012. The prolonged correction period, though had thrown many investors into hot water, has retrieved the overall rating of the Sri Lankan stocks amongst the plateau of attractive emerging markets. Though trading at 13.3X trailing 4QPER, one year forward PER for 2012E/FY13E remains at 11.4X (trailing CY2011/FY12 PER is 12.2X). We believe most companies would improve their profit positions during the 2nd half of the FY13 with 2QFY13 earnings remaining largely flat on a QoQ basis with recovery signals in 4QFY13. Growth rates in company earnings for Dec 2013E/Mar 2014E is likely to improve to 16%-18%. Our market valuations are approximately 11.4X FY13E earnings while trading at 9.8X FY14E earnings.