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.
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.
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