Where is Union heading?

Trust me that this is not another political article! In this post I’m hoping to give my views about Union Bank of Colombo PLC trading under the code UBC.N0000. The recent drastic changes in the capital structure and the governance structure and some of the comments that appeared on a Sri Lankan stock market related online forum prompted me to think of writing this post. To speak the truth everyone on the said online forum only spoke about the tip of the iceberg and was completely missing what was below the surface. Well, can’t blame them because they may be playing the trading game. However, I’d like to look at the bigger picture as my hunch suggests that I invest in UBC now. 

History of high-profile investing

The history of UBC is full of high-profile investments in it. In 2007, Middle Eastern investor Prince Faisal Al Abdulla Al Faisal Al Saud, the grandson of King Faisal of Saudi Arabia invested c. LKR210 million in the bank. Co-invested with the Saudi Prince was the local investor Mr Alex Lovell one of the most inspiring Investment Bankers in the country to me!) who brought in Rupee-to-Rupee as well. Both the investors acquired 10% stakes in UBC. Hence, the new investors valued the Company at c. LKR2.1 billion. The Saudi investor’s holding is currently worth about LKR373.5 million. That is approximately 1.8x the initial investment and a 9% CAGR over 7 years (ignoring dividend income). Returns to Mr Lovell were more likely to be slightly lower.   

June 2010, the Bank hit another milestone with another LKR1 billion capital infusion from Malaysia based Genting Group related parties. From the available information I assume that they bought a share at c. LKR11.40 per share for a stake of 26.41% (via two different entities, namely Vista Knowledge Pte Ltd and Select Gain Limited). At that price the investor was valuing the Company at c. LKR3.8 billion. Currently, their stake is worth c. LKR2.2 billion which is equivalent to a 2.2x the initial investment or 22%  4Y CAGR (in LKR terms ignoring the dividend income). (not too bad  right!)  

The Board of UBC approved another high profile investment in August 2014. The deal was a landmark transaction in the history of Sri Lanka and put Lanka on the spotlight globally.  

Compared to all the other strategic investors that UBC attracted so far, TPG are experts in running financial businesses globally. For instance, Saudi investor is not an expert in running financial businesses in the Emerging or Frontier market segment and similarly, the Genting Group is leisure and hospitality based business.  

Retailer hullabaloo

I came across some comments on a web based forum in Sri Lanka where the forum participants saw the entry of TPG as bad thing for the company.  In fact, under the transaction, TPG has brought in three times more capital that the other shareholders brought in over about 19 years since the inception. Without capital any company’s growth is hindered so I think capital from an investor like this should be welcome. 

TPG in Asian Region

As per the TPG website, their approach to investment is “TPG's approach to investing helps us recognize value – or the potential for value – where others cannot see it. This contrarian philosophy has delivered consistent and outstanding performance because we dedicate the right mix of capital, time, and management, and operational expertise, to make successful investments out of challenging situations. Some of TPG's most noteworthy accomplishments have been in situations involving complicated structures, cyclical and regulatory risk, and distressed and turnaround situations. We maintain a mid to long-term perspective on investments to help companies grow to meet their full potential”.

TPG entered the Asian region in 1994 and since then transacted several landmark minority and majority stake transactions within the region. I would like to shed some light on some of these transactions as they may give you some foresight as to what they would be likely to do with UBC going forward. (however, I will only focus on Finance Sector related transaction as there are many transactions in many diverse sectors).

TPG’s acquisition of Shriram TransportFinance Company Ltd was a classic example. The picture below shows the growth numbers achieved by STFCL after capital infusions by investors like TPG. 

Assets under Management of INR2.9 Cr inFY04/05 grew to INR53.1 Cr by FY13/14. (That’s a 9Y CAGR of  38%). During the same period, EPS grew from INR9.06 to INR55.72. If you want to do a further analysis you can find their FY08/09 Annual Report here and FY13/14 Annual Report here. It is believed that they exited the investment with hefty gains. The price chart of STFC on NSE is provided below. BSE chart can be accessed here. 

One interesting thing about their entry in to a firm is that they are able to bring in other PE or institutional investors to the investee company if there was further capital required. Moreover, they exit through trade sales or via public market through block sales to other PE or Instos. You can get an understanding about common PE exit strategies from here. This helps in avoiding sudden market price volatilities.

TPG’s successful entry in to China’s financial sector and its exit are also notable.  It’s ASEAN region presence was highlighted when they invested in BankThai, currently known as the CIMB Thai Bank. In Indonesia, they took a significant stake in BankTabungan Pensiunan Nasiona (BTPN.JK) in 2008. Later in 2013, they partially sold its stake to Sumitomo Mitsui Banking Corp (SMBC). This chart shows the performance of BTPN.JK since 2008.

In another investment by TPG, they took a 51% stake in Korea First Bank in 2000. TPG’s website mentions, “Korea First Bank: In 2000, TPG acquired a 51 percent stake in one of South Korea's oldest and largest banks. This represented the first foreign acquisition of a Korean bank. TPG rebuilt the failed franchise by creating new financial controls and risk assessment tools, and repositioning it as a retail bank”.  In 2005 they sold the stake in Korea FirstBank to Standard Chartered PLC. It is believed that TPG invested KRW500 billion and sold it in an all-cash deal of KRW3.4 trillion (c. USD3.3 billion). 

What’s next?

Right now UBC is sitting on billions of cash that was injected by TPG. Hence, the company will be in a position to grow the loan book rapidly with good quality credit. Why I believe so is because I think now they are in a position to compete with many players on a pricing perspective and penetrate in to their market very fast.

So, gathering from the above, I can predict that there will be quite a number of corporate activities over the next 4 to 5 years period at UBC. They may include allotment of shares under ESOPs, issuance of different types of financing instruments like convertible structures, amalgamations, acquisitions (of other banks, venturing in to stockbroking, insurance, etc), conversion of the warrants (the warrants offered to TPG in UBC were in-the-money even at the point of issuance and continue to be in-the-money as I write this), aggressive dividend payments, further ratingupgrades, etc.

Find the Directors views here.

Further, it is interesting to note the representatives that TPG have brought on to UBC Board of Directors. The three Directors are Dr. P. J. Nayak, Mr. Michael J. O’Hanlon and Mr Puneet Bhatia. Havea look at their profiles. They bring in a wealth of knowledge and experience to the table. For instance, Mr Michael was has served on all the boards of the discussed investments in Asian finance sector by TPG. So, I wouldn’t be surprised if UBC introduces commercial and residential mortgage products to the Sri Lankan market. 

Exit already designed, so keep watching!

There will be a gradual exit by TPG where I expect blocks of 15% of the Company will be sold to other strategic investors via Trade Sales (over the next 15 years). Also I suppose that there may be Secondary Equity Offerings (SEOs) to the general public in major sell down by TPG. Further, there will be further dilution as TPG exercises the Warrants. Hence, over the planned period there will be a huge increase in the shares in the market. (though I don’t expect the investors who join later to sell down in the short term causing price to crash.) However, it is worth watching the developments.

Bottomline

From what I believe the entry of a PE investor like TPG to a company is a good sign from all the investors’ point of view. I also think that in the next few years UBC.N0000 will be mostly driven by a variety of news that will flood the market. Value creation will be the ultimate motive for TPG as PE investor and a successful exit to them will only come through value creation. Hence, I think it is in the best interest of every shareholder that TPG will act.  

Black Swans in Sri Lanka

Well! Swans are not species of Lanka. (I have to confess that I’m not an expert on study of birds, so there may be something that I don’t know about birds in Sri Lanka). Anyway, I relate my post this time to the recent developments that took place in the Sri Lankan political landscape. Also I guess this may be the answer to my friend from UAE who was enquiring me about the recent developments (he’s keen as he is heavily invested in Sri Lankan capital markets!). I prefer to not write about politics due to many reasons, but I have to accept the fact that it’s part of our everyday endeavors and hence can’t be just ignored.

In an unprecedented move, as the ruling government announced early presidential elections, the General Secretary of the ruling president’s party as well as the Health minister of the government defected the party to join forces with others to contest as the presidential (Common) candidate. It should be emphasized that this incident was never predicted by anyone, the event in fact carries a massive impact and finally now we concoct that it was more predictable than it was. As a matter of fact, these three principal characteristics makes the event qualified to be called A BLACK SWAN, as Nassim Nicholas Taleb pointed out in his award winning book “the Black Swan”. As per Taleb, Black Swans are:

• Outliers, as it lies outside the realm of regular expectations (the question who is the common candidate was never answered until defection of ruling party member);
• It carries an extreme impact (this event had the extreme impact of shaking the ruling party and invigorating all the opposition parties and their sentiments and has the potential to even topple the ruling government. Also the event has changed drastically the investor sentiment in the CSE); and
• In spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable (also called as retrospective predictability).

History’s repetition of itself!                                                                                                        

I wonder for myself, when I look at Sri Lankan politics, that it’s true that history repeats. 

Further, What we dealt with over the last few years and currently dealing with in terms of politics is a result of the opposition’s inability to play a formidable role over the past decade or so inasmuch as we say it is the fault of the ruling regime (another way to look at the same problem, I guess).  

I narrate my expectation via the 2010 movie Black Swan the plot of which can be read here.

I hope that if the common candidate becomes the president of Sri Lanka in January next year that he remains a White Swan rather than becoming a Black Swan who is not acting on behalf of the citizens but the people who surrounded him to be appointed as the president. (Because we know that the people around him have shown that they were utter failures as leaders of this nation). Or if the current regime continues that the opposition exert the same pressure on the regime to act for the benefit of the citizens. (As they are doing right now). 

As the saying in Sinhalese go “INGURU DEELA MISRIS GATHTHA WAGE” or in English “like, getting chili to replace ginger”, I hope we as the constituents in the country will not have to face something like this by replacing ruling president with the common candidate. ( if that was the wish of the majority of voters) Why I’m saying this is because all this time we tried to replace existing with the hope of a better outcome which never happened. (we ended up in even worse situations). 

Bottomline

I hope for nonviolent resistance leading to peaceful transition to the desired state which ensures law and order, inculcates good governance, drives economic growth, maintains peaceful environment in the country, etc. 

Do it before it’s too late

I start this post by taking you back few years to 2010 to talk about a Sri Lankan company the story of which fascinated me for the entrepreneurial success, success as an equity IPO and a classic example of how the power of capital markets be used. Under the prospectus dated 26 May 2010, Odel Limited offered its shares to the public (offer was open for subscription from 5 July 2010). Unfortunately, I can’t find a link to the prospectus now. (If you need a copy I can share it though!) Odel offered 16.7 million shares (11.52% stake of the company) at a price of LKR15 to raise LKR 250.5 million. (thereby valuing the entity at LKR2,174,250,000 post-IPO and founder Otara’s stake at LKR1.2 billion, Believe it that this was an investment by her of LKR475,000, pretty amazing!). The objectives of the offering were manifold:

Investment in expansion (branch network) of c. LKR150 mn;

Settling debt, c. LKR100 mn; and

Expected to also benefit from the listed status, in the form of brand improvement, broaden ownership, marketability to shares and access to capital markets. 

The funding was supposed to be utilized by the end of 31 March 2011.

The Company, Zero to two billion revenue in 20 years

Odel is a venture started by Otara Gunawardene. I extract some stuff here directly from the prospectus “The Odel story began when Otara Gunewardene started selling clothes from the boot of her car to family and friends. Although she stumbled upon the fashion retailing industry accidentally, Otara saw the potential for retailing a range of stylish clothing to the fashion conscious Sri Lankan, and in 1990 she launched Sri Lanka’s most innovative brand – Odel, which is a combination of her first name, Otara, with her middle name, Del.”

The first store of the company was started in 1990.

As of 2010, “From the beginning, the brand has grown along with the business. The initial staff of 2 has expanded to more than 650, and Odel provides indirect employment to more than 500 individuals. Over 500 suppliers and 200 plus factories locally and globally supply Odel with a wide range of products.”

As of the IPO date, the company had 12 stores encompassing 125,000 square feet.

Summary financials of the company as they were presented in the Prospectus is reproduced to give some more details as to how it was performing financially.

Timing of the IPO

May 2010, just one year after the end of the conflict in Sri Lanka, the market was rallying (probably the best rally the market had ever seen) and valuations were pretty good, was the perfect time for anyone to list. On top of that Odel was a very well-known brand around in the main cities and hence marketing the IPO was not a very difficult task.   

Almost all the stock brokers were also of the view that at LKR15.00 a share, Odel was a BUY.  (was is it a good call at the time?) Have a look at the below table for some of those:

The shareholding pre-IPO and post-IPO were as follows:

IPO pricing

Unfortunately, by 2010 I didn’t do a valuation of Odel Ltd and hence I don’t have the chance to re-look at it (may be after writing this post I will be able to follow Odel, hopefully!) Anyway, let’s do some post-mortem on the pricing at the time of the IPO.

Let’s look at the performance of the company for the 5 years from 2006 through 2010.

Odel posted 11% 5 year CAGR of revenue and achieved 8.84% average EBIT margins (after adjusting for non-recurring gains in FY2010). In terms of NP margins, the company hit a 5 year average of c.2.82%.

As far as the information is concerned Odel was founded by Otara, Ajith Gunawardene and D.S Gunawardene with capital injection of just LKR 1.425 million. That converts to 142,500 shares issued at LKR10.00 per share (split equally among the three founding members). What was most impressive was that the company grew to be LKR1.2 billion by 2010 (that’s 20 years from its inception in 1990). You can see the growth in shareholders’ funds as per the graph.

Further, over the same period Odel managed to earn ROIC of 15.13% on average with an average Debt-to-Capital ratio of 1.37 times.

On the IPO year the gearing increased significantly on account of expansion as well as significant dividend payments (which I assume was debt funded immediately prior to the IPO and the IPO funds were utilized to settle debt which was almost equivalent to LKR148.3 million paid as dividend, pretty good ha!. This I’m guessing was paid out to Otara and Ajith with c. LKR99 million to the former and c. LKR49 million to the latter).     

The relative pricing table below gives an account of the pricing of Odel before adjusting and after adjusting for the IPO (on trailing FY10 figures).

Odel as a listed vehicle

Let’s look at Odel’s story as a listed entity. The price-volume chart below shows the behaviour of ODEL.N0000, the ticker for Odel PLC. Also by the side of P-V chart is the Return chart and it is evident that the stock has always provided positive returns to investors. (note that this is not the total returns)

Currently, Odel consists of 20 stores (up from 12 in 2010), which converts to 2 new stores a year since listing the company on CSE.  As opposed, to 125,000 sq.ft. of retail space by the time of IPO, currently the retail space with Odel encompasses c. 150,000sq.ft. The total staff strength, of Odel at present of 1,000, contrasts with 650 in 2010.

By the end of 31 March 2014, Odel managed to almost double its revenue to c. LKR4.5 billion as compared to c. LKR2.4 billion in FY10 (that’s in just 4 years after the IPO and a 4 year CAGR of 17.43%).

Even though the store expansion had helped Odel to boost its revenue (per square foot revenue has grown from LKR19,334.00 in FY10 to LKR30,633.00 by FY14), it didn’t come cheap! A government imposed VAT mechanism impacted ominously to the GP margins over the last two financial years.  As Odel added more and more stores to the network, admin costs have increased significantly.

In my opinion, I presume that some of the suburban stores must be eating in to profits at other well-established stores like Alexandra Place. Further, it is also noted that the three stores that came up in the second half of the financial year has not been in operational full cycle (however, drop in Adj. EBIT & EBITDA margins has started from FY13).

The drop in margins is also explainable from the industry perspective. For instance the competition in the retailing (clothing) has intensified such that there are many options available for customers right now. From my own experience, I know that Odel Battaramulla store is empty every time I go past it. However, the competitor, “Cool Planet” which is located just couple of miles from Odel is full at any given time. These retailers serve different segments in the market. Further, Odel may not be the option for the market segments in the suburban areas. I also know from day to day conversation with people that the suburban people perceive Odel as offering the same stuff that the local retailer offers at a higher price. There may also be one off expenses incurred by the company on behalf of the development projects that they have planned (going to be rolled out with the money raised through the rights issue in 2012. But such information is not disclosed).

This development may also be explicable from theoretical perspective under the concenpt of "Marginal Efficiency of Capital" which was advocated by Keynes (1936). The table above looks at the qaulity of growth of Odel. If you look at the marginal ROIC it has dropped starting from 2012. it has in fact turned negative. As you can also see from the quality of growth line, the costs of delivering growth (in revenue) have gone up meaning that LKR100 of marginal capital has only generated LKR12.39 of marginal revenue in FY14.    

The first exit

Odel’s story was further winched as Singapore based retail operator Parkson Retail Asia Limited bought a 41.82% stake in Odel via a sell down by the founding shareholders.  Here again Otara pocketed out close to LKR 1 billion. Post sell-down, Odel went ahead with a 1:1 rights issue to raise c. LKR2.9 billion although they ended up raising LKR2,543,588,620.00 on 17 December 2012. The monies were raised to go ahead with a mega expansion plan which to date has not happened and the money is just sitting in financial investments. (however, they bought a land adjoining their Alexandra Place store which may be used in the future for such planned expansion). Ideally, they should have raised this capital in a staggered manner through different equity structures like warrants, calls, etc. If that was the case there wouldn’t have been this much money stuck for almost two years.  Their ROIC ratio is negatively affected due to all these as you can see from the below graphs.

The second/full exit

In September 2014, the promoters of Odel took a decision to fully exit from the investment and similarly Parkson also decided to fully exit from their short-lived investment. Otara sold her entire stake in Odel to Softlogic at a price of LKR1,778,328,200.00.

Entrepreneurial success

I extract again from Odel’s 2014 Annual Report, “Otara has the distinction of being the first female entrepreneur to take a company public in Sri Lanka. When Odel launched an IPO in July 2010. Following the entry of Parkson Retail Asia 2012, Otara retains a 29.7% stake of Odel PLC. Her entrepreneurship was globally recognized in 2010 when she was named the best female entrepreneur at the seventh US Stevie Awards for Women in Business”.

To put it in to perspective, simply in language that I understand, I did a quick IRR calculation of her investment in Odel. Please bear in mind this is only based on the available information and certain approximations of timeline as I don’t have exact dates of cash flows. Also the fact that I don’t have info for a period of 15 years when the venture was privately held. Bearing all that in mind I wouldn’t say no to returns like that (IRR of 43% or more) and walking away with LKR1.8 billion in cash.

I think it's time to wrap this post up and I promise that in my next post I will look to value Odel. Then I can have a look at Odel as an investment given its current status.

Bottomline

Entrepreneurial success is not just start of successful ventures but it also encompasses the successful exit at one point. No matter how best a company is brought up in its life cycle, there is a time when it needs to be passed on to the next generation (may be to start a new cycle or to die as the company reaches decline stage). Further, the capital markets got the enormous strength to create wealth and push a business to heights which were not possible before. Moreover, it is a good place to smoothly exit. Odel is a best case study for Sri Lankan entrepreneurs as well as capital markets participants. 

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. 

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.