Finance companies snapshot

[First Guy]

From the below thread, I see that some of us have a lot of finance companies in our portfolios.
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This is a simple snapshot of selected 10 stocks.

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Data is on TTM basis while ROE is calculated on the period end number. So do your own calculations before making any decision.

[First Guy]

From the above,
COCR is trading at a very high P/B multiple due to it's high earnings.
ALLI trading at a low P/B but earnings quality is questionable.

We can add more comparable data to find out reasons for these differences. (In future)

[කිත්සිරි ද සිල්වාTop contributor]

Thanks FG.
(We are listening).

[First Guy]

What other data should we compare when it comes to finance companies? I have compared one item which might make sense to me. But I'll hold it for now till I get some suggestions

[BackstageTop contributor]

The "Fins" are the favorites for the upcoming quarters. Would love to see more knowledgeable observations here.
I am keen to know the signals of when to exit/reduce exposure to the sector.

[First Guy]

The "Fins" are the favorites for the upcoming quarters. Would love to see more knowledgeable observations here.
I am keen to know the signals of when to exit/reduce exposure to the sector.

One comparison I made was the Loan to "Deposit + Borrowing" ratio and found something interesting.

As for entry/exit, at this stage, it would depend on any key decisions taken at higher level for me.

[BackstageTop contributor]

The "Fins" are the favorites for the upcoming quarters. Would love to see more knowledgeable observations here.
I am keen to know the signals of when to exit/reduce exposure to the sector.

One comparison I made was the Loan to "Deposit + Borrowing" ratio and found something interesting.

As for entry/exit, at this stage, it would depend on any key decisions taken at higher level for me.

Upward movement in interest rates being an obvious one.

[sereneTop contributor]

The "Fins" are the favorites for the upcoming quarters. Would love to see more knowledgeable observations here.
I am keen to know the signals of when to exit/reduce exposure to the sector.

One comparison I made was the Loan to "Deposit + Borrowing" ratio and found something interesting.

As for entry/exit, at this stage, it would depend on any key decisions taken at higher level for me.

1st G good bench mark too start with but should account following factors as well.
Some finance companies with proven records have credit lines with low interest rates in the pipeline with the major banks.
So especially last year or so where inerest rate decline from 20's 10's its wiser to think that they might discourage fixed deposits to bank borrowings.
Anyway Savings underpins the real competitive edge over FDs and bank borrowings which we wont be able to compare through the reports available in cse.

Also another important factor we can use to compare the these companies is their delinquency ratio.
As we must understand the fact that it's easy to lend but real challenge lies on recoveries.
So the better trend in impairment is pivotal factor in success of finace companies.

[First Guy]

Thanks serene.

Yes I have noticed one large company has quite a lot of bank borrowings than deposits and doing well

Yes, factors such as NPL are vital but are only available in the AR most of the time. For the moment, I'm collecting some data from the financial statements.

[sereneTop contributor]

Thanks serene.

Yes I have noticed one large company has quite a lot of bank borrowings than deposits and doing well

Yes, factors such as NPL are vital but are only available in the AR most of the time. For the moment, I'm collecting some data from the financial statements.

1st G if my memory serves right you can find Impairment in quarterly reports in P&L account.

[GroundedKestrel]

Going solely on the aforementioned table, what is the best stock on paper?

[First Guy]

Going solely on the aforementioned table, what is the best stock on paper?

Not quite easy that. VFIN and LFIN are good in one way. PLC and SFIN look good too in their own ways.
ARPI might look good with the above numbers but it had a one-off gain as I remember which has the numbers inflated. ALLI - I have my doubts on the quality of its earnings.

Note the price has moved a bit since that table was published

[balapasTop contributor]

Finance companies should target GOVT institutes to promote leasing, hire purchase and loans. Starting Jan govt sector monthly salary increased by rs10,000 by June. For doctors rs20,000 and nurses 13,000 due to salary plus an allowance increase. They have more money to spend so demand for leasing and loans will increase given that keeping money in a FD does not make much sense.

[NuinthTop contributor]

Finance companies should target GOVT institutes to promote leasing, hire purchase and loans. Starting Jan govt sector monthly salary increased by rs10,000 by June. For doctors rs20,000 and nurses 13,000 due to salary plus an allowance increase. They have more money to spend so demand for leasing and loans will increase given that keeping money in a FD does not make much sense.

Agreed balapas.

Further people will spend that extra money for some electric/electronic items like TV,computer, fridge, microwave, fans, cooker, oven etc etc.

Just came to mind Singer, Abans may have a plan for increase the promotion in those places & will give leasing facility via their leasing arm. ( SINS & SFIN) (ABAN & AFSL)

Good luck....!

[Hybrid]

AMF and ARPI are stable and well run.
Only problem is there are very little shares held by the public in AMF.

ARPI is a different kettle of fish and just taken over by AMF. so wait and see the results.

[First Guy]

Please suggest addition and deletions to this list.

HUNTER, how about a BFI specific formula?

[First Guy]

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That's a nice piece of graph, isn't it?

As for the numbers, VFIN has the lowest ratio of Loans+Leases vs. Deposits+Borrowings. They've grown the deposit base faster than the loan book in the past year and the money has ended up in REPOs as at end of the period. VFIN is also the smallest among the above companies.

[HUNTERTop contributor]

Please suggest addition and deletions to this list.

HUNTER, how about a BFI specific formula?

Just noticed the thread, very late (As usual ).

Like your presentation and the approach with multiple parameters and angles for analysis. ++

Usually, I am a bit reluctant (in fact lazy) to go for sector specific analysis, but will give a try from my end in this case.

(In order to do that...)

Would like to know if there are any sector specific parameters a 'buyer' might look at when consider a BFI share to buy.

Also would like to study how (with what parameters) we can judge the degree of success of a BFI company.

Also would like to study what make a BFI company different from other industries from an investors point of view.

(Now only I understand there is a lot to study...)

[First Guy]

There is always a LOT to study

I'm no expert, but I share things that I analyze which may not be a norm or a standard. (This one is a norm though). Different investors will look at the same stock differently and have different values. It's when all of them meet (at a place like this), everyone can benefit and learn Your formula is one such item.

[First Guy]

As for BFI companies, the simplest explanation is the net interest income and the margin. I have not compared the margin as some of them don't report it in the reports (Banks do). Then the income from fees, trading etc., It's good to have a higher portion of these revenues specially during times of interest rate volatility.

When analyzing BFI companies, we need to check the amount of loans given vs. deposits (and/or borrowings). If they have not managed to grow the credit in line with deposits continuously, there could be a cause for concern.

Some might grow the loan book but not the deposit base, in which case the companies would look at higher cost borrowings. Another point to note is the maturity profiles of loans, deposits and debt. Most finance companies would have short term deposits which they hope would get renewed while attracting newer deposits.

[BackstageTop contributor]

Wouldn't it be better to do BF as "I" will make a common formula more complex.

[HUNTERTop contributor]

OK

It seems, even in BFI sector, when looked at minute details, different companies have reported the financial statements slightly differently.

However, I also feel, with everyone's help, we can come up with a 'common' tool to compare them successfully.

I would like to start the analysis with a top-down approach.

I propose, the main objective of the analysis would be to identify the following aspects of the company.

1. Growth potential (identify how fast the company can increase its value and increase benefits to owners)
2. Risk (what are the chances that the company would fail to achieve the above (Growth) )

Please propose any other 'basic' aspects we might take in to account.

In order to do the the above, we shall gather information from the following.

1. Published quarterly financial reports.

Right now I am limited to the above. Any other sources you propose?

In the reports, we will consider the following statements.

1. Income statements (Quarterly Group)
2. Financial position (Group)
3. Cash Flow (Group)

Anything else you like to propose?


In the above statements, we can consider the following line items for our calculations. Please suggest your view for removing or adding any items.

1. Income statements (Quarterly Group):

a)Total Equity attributable to equity holders of the parent
b) Interest Income
c) Interest Expenses


2. Financial position (Group)

a) Total equity attributable to equity holders of the
parent
b) Deposits From Customers
c) Loans and Receivables to Customers

3. Cash Flow (Group)

a) Net Cash Generated / (used in) from operating Activities
b) Interest Receipts
c) Interest Payments
d) Net Funds Advanced to Customers
e) Deposits from Customers


What do you feel?
Do you think this is good OR should we try adopting a different approach?

[yellow knifeTop contributor]

When evaluating BFIs capital adequacy ratios are important..

If your are growing faster your T1 and T2 ratios will get affected making you to go for a rights issue..

Once after rights issue a company will face new set of problems..

In FBI sector fast growing companies have to undertake very high risk..

Therefore developing a common forumla will be a tricky one than in other industries...

[First Guy]

Quite true YK. There are a lot to look at from different angles. Capital, loan book, deposit base, credit quality, interest margin etc.,

I assume the "growing faster.." you mentioned is with reference to the credit growth. As profit growth will only improve the ratios (correct me if wrong). How much is paid back as dividends is also something to consider (although in the past even companies which had paid dividends went for rights soon afterwards).

[First Guy]

I'll update this some time next week or weekend. Let's wait for LFIN to settle.