Macro shocks pressure profits

Saturday, 25 August 2012 03:15 - - {{hitsCtrl.values.hits}}

The combined profits of a sample of 88 firms analysed by NDB Stockbrokers reveal a decline of 13% year-on-year to Rs. 38.5 billion in June, though when non-recurring items are excluded, the results show a 10% increase.

NDBS said the 88 companies picked contribute 69% of the total market capitalisation of the Colombo stock market. The results analysed include 27 companies reporting profits for the six months ended 30 June and other reporting profits for three months.

The broking firm said excluding Carsons Group companies, Carsons, Bukit Darah and Ceylon Guardian, the combined profits of the sample companies grew by 8%.

NDBS said the Plantations sector saw significant growth in profits with a growth of 410%, reversing losses of last year (24% adjusted to non-recurring items). The Hotels and Leisure sector also performed well during the period with all the companies in the coverage universe reporting improved bottom lines and the sector profits improving 60%.

Bank, Finance and Insurance sector (49.7%) was the highest contributor to the earnings in absolute terms, while Food, Beverage and Tobacco (16.0%), Diversified (9.1%) and Manufacturing (7.1%) sectors came in next.

Companies with significant US$ borrowing (especially telecommunication sector companies) saw profits plunge due to the depreciating rupee, while some banking and finance sector companies saw gains in foreign exchange segment.

NDBS said in addition to recording a robust growth in profits, the Banking sector valuations look relatively cheap. Despite the slightly expensive valuations, the Food and Beverage and Hotels sectors have recorded high growth in profits. Although the profit growth in the Manufacturing sector is subdued in the short-term, the valuations are attractive considering the medium-term growth prospects.

Given the performance by end June, NDBS has reduced its profit growth expectation for FY12/13 to 5% from the previous estimate of 10%.