Saturday, October 11, 2014

Uva Rebellion 2014

Over the last few weeks, I was thinking of writing something bit more different to what I have been writing on My Views. Here, I’m trying to give some perspective to the recently concluded Uva Provincial Council elections (at the outset I have to make a confession that I’m not a political analyst and I will try to give a balanced/impartial view). 

Uva elections 2014 is important in several ways. One being that Uva is the place of historic rebellion, Uva-Wellassa Uprising. (though the rebels were not able to win against the ruling British regime). This time Uva Rebellion was between ruling United People’s Freedom Alliance (UPFA) and the United National Party (UNP). Ironically, analogous to the 1818 Uva-Wellassa Uprising, the rebels (in this case UNP, including JVP) didn’t win this time also. 

Secondly, I think that this election results gave a very strong message to the UPFA government that there are crucial things that they need to address if they were to remain in power. Further, the election results have put the government at odds as to what they should be doing next, going for the Presidential Election first (before their popularity further fades away!) or for the General Elections first. This article also  discusses about it in little detail. Finally, the main opposition UNP have gained some gusto after many years of losing elections, loss of strong party leaders, loss of voter faith, etc. 

The Uva fight back
The most interesting thing about 2014 Uva Elections is that Uva voters have been able bring back most needed equilibrium to the political market/environment. That is the opposition has emerged again as a formidable force, which is my expectation as well. There is no doubt that any country needs a strong opposition to ensure that the government is doing the right things by the citizens. The below table gives a comparison of the Uva 2009 and 2014 provincial council elections;


Results definitely say that the government need to seriously think about what went wrong. (true that they have done a lot compared to all the other governments, but end of the day voters will decide what they need). Also UPFA is placed at cross roads strategically as to what should be the next step given the results; whether to hold the Presidential Elections first or the General Elections.

UNP story
The United National Party has in the recent past become the "Ugly National Party" due to serious internal problems that they have been dealing with. To date these issues are prevailing, I believe. That’s why they have had to create several different types of leaders within the party in an effort to keep the internal crisis under control, or at least to show the frustrated voters that everything is fine! However, there wasn’t any difference in their campaign as compared to the previous campaigns which they lost painfully. Rather, voters’ “enough-is-enough” attitude, prevailing drought conditions at the time in Uva and government’s disproportionate focus on one district rather than both in Uva lead them to the strong results compared to 2009.     

JVP the third force
JVP the third force; my view is that they did remain the third for all their life and they will continue to remain so for the indefinite future. The reasons for this, I would prefer to look from the demand & supply point of view as well as market size perspective (as I’m always used to look at things, in finance!).

The main theme (supply) of People’s Liberation Front (JVP) is the revolution (as far as I know. Have a look at their manifesto anyway). The demand is certainly not that. Because, I know for sure that I don’t need a revolution, as I believe that there won’t be any benefit of a so called revolution (even if it happens successfully I don’t think it will be a better solution) Similarly, the vast majority in the country is not looking for a revolution to reach a certain better state, like me! Hence, what they supply is not in huge demand for it to be a profitable offer to JVP and the vote population. Also the addressable current market size for any political party is the 14.2 million voter population in Sri Lanka. As I explained in my first point, this market is not looking for a revolution. Further, this market consists of different ethnicities (mainly Singhalese), religions (mainly Buddhist), languages (mainly Sinhala), genders (50:50 male to female), etc.  Of this they are targeting the poor, rural, pro-revolution communities which do not add up to 50% of the voter population given the increasing middle class, changing economic structures, more global citizenry, etc. If JVP were to be successful with their offer, they need to see at least 50% of the voter population demanding revolution, which I think will never happen (that’s why I mentioned that they will remain the third force for the INDEFINITE future! But, I should qualify my saying that they may be second or first force if they change their offer, which they are doing. But, that offer is going to be very similar to what is currently being offered by UPFA or UNP.) 

The bottomeline
Uva elections 2014 has enabled the power of people again.  However, it is doubtful whether it will be the start of a rebellion that will topple the incumbent government. The JVP will live their fantasy, unless they offer what is in demand. 


Thursday, October 2, 2014

Ramboda Falls! Stock Rises! The story so far


In May 2012, Ramboda Falls Limited sought a listing on the Colombo Stock Exchange (CSE) in order to fulfill the following objectives (Extracted from Ramboda Falls Limited IntroductoryDocument): 


“One of the primary objectives of listing to fulfill one of the prerequisites of the Japanese investors in developing and setting up the cable car system within the hotel premises. Listing will also enable the Company to enhance its corporate image, through greater transparency and better corporate governance practices.”

“The added expertise brought on by the new directors will help the Company develop and expand in line with the current growth in the hospitality sector.”

“Further, listing will enable the Company to broaden the public ownership of the Company and increase the visibility and brand image of the Company.”

The above objectives are listed on page 16 of the Introductory document (ID). 

Further, as per the ID the reference price for trading the stock, once it is listed, was given as LKR10.00 per share (valuing the total entity at LKR200 million). The ID further mentioned that the basis for the LKR10.00 valuation was that the shares of the company were transferred by existing shareholders to several public shareholders at that same price (the share transfer was done to meet one of the general listing criteria laid down by the CSE) and also the price was in line with the book value per share of the company (it did not mention as at which date’s book value they were referring to, but I assume they referred to the 31 March 2011 book value per share of LKR10.37). 

Market does miracles!

Ramboda Falls debuted on the market on 18 June 2012 under the ticker symbol RFL.N000. RFL managed to hit a day’s high of LKR35.00 and a low of LKR15.00 before closing the day at LKR24.10, recording a 141% gain over the reference price. Then came the downfall! The stock started coming down and stabilizing. Since then up until June 2014 the stock has traded inside a band of LKR20.00 – LKR10.00.




However, beginning from mid-June 2014 it started rising rapidly (as can be seen from the chart). Curiosity struck my mind at this point and I started looking at its valuations and reasons for the steep rally. During this same period, there was only one significant announcement which was about the commissioning of a 1.2MW hydro power project of which RFL is entitled to a 5% profit share. Otherwise, there were changes in directorate. Was it due to these pieces of information that the stock moved up! I certainly don’t think so. Why do I think so! 


The RFL story

 “The Hotel has initiated an adventure project in its premises in collaboration with Australian experts and local investors. Initially the company had an idea to implement a Cable Car System within the hotel premises, however due to challenges in obtaining approval and Land acquisition, it become non- viable. The proposed adventure project remains more attractive and profitable.” This is a quote from the Company’s 2014 Annual Report, Chairman’s review. As per this revelation, one of the objectives of listing the company is lost. I also have doubts that due to the inability to initiate the Cable Car project, the Japanese investors may look to exit this investment. If that was the case the second objective of listing would also be lost. 

As per the June quarterly accounts the Company’s performance was not that impressive to warrant such an increase.   

So was there some other news that market knew and I didn’t know via public sources. 

Is it worth it!
Well, I can’t be worried about any news that I don’t have access to, but I can do my work and see whether it is worth it. If that is the case, I can look at buying it or I can stay away from the trading game in the market.Have a look at my valuations.

Based on relative valuations based on my assumptions also, I can't justify current market price of RFL. You can have a look at them below.

The bottomline.
My belief is that RFL is overvalued at current prices as does the total Hotel & Travel Sector in Sri Lanka (trading currently at PER of 56x.