Re: Finance companies snapshot

[CKActive Member]

Thanks FG. Really appreciate.

[CKActive Member]

Dear FG, can you give some analysis on csf ? What you think about the future of it? I heard some micro finance act came last week. Will it be an effect to micro finance companies?
Comments and ideas of others are also really welcome..

CSF looks to be making a turnaround. look above impairment level last quarter but has not paid taxes. Need to see one or two more quarters to be sure but this is the time to take the call depending on how well and deep you can analyze. I haven't looked so deep. Has traded 1.30-1.60 in recent times.

sls has talked about it somewhere here.

Some interesting collection is going on csf
disc: holding

[sanjulanka]

Thank ck

[sanjulanka]

[CKActive Member]

csf doing good. thanks sls and chinwi.  (Their comments really helped me to get there early)

[First Guy]

CSF has already run from 1.20/1.30 level to 1.80/1.90 around 40% gain. It may go further today looking at yesterday's trend, but it's fundamentals can be confirmed to some extent when results come. A deeper analyst may have already done that.

Be careful if you decide to chase this at 1.90 right after a run. It may or may not work out.

In the past people have chased like that and when price moves down have blamed those who talked about it when the price was much lower.

[CKActive Member]

Now I am doing avg up for csf. My favorite method.. Let's see..

[First Guy]

To add to my earlier observation on CSF, this has become stronger after the rights issue. Issue was at 1/- so those who subscribed have already got their return.

Currently it is at 8.4x P/E and 1.8x P/B (at 1.80/-)

At Jun-16 quarter EPS x 4, P/E will be 5.4x which seems on par or above the average of some 'stronger' finance companies.

Operating expenses in June were very low compared to previous quarters. Will this sustain?
Impairment charge was huge, if not for this, net profit would have been much more. No VAT on financial services or income tax deducted. So this is not an idea quarter to do the math in a conventional way.

Capital is still short of minimum requirements. Will they go for another rights issue or a debt issue?

[First Guy]

Thanks FG. Your analysis are very useful. You have studied the industry in depth.

Appreciate if you could help us with following.
1) When interest rates rise, what would happen to Finance companies? Eg: the banks are offering 11% or more for one year FD. So the finance companies have to offer at least 12% to attract customers. When they borrow at 12% from depositors they will have to lend it at least 17% to make a fair margin. Is this happening?

2) Companies like PABC, LFIN and VFIN did a wise thing during April. They did big promotions for their Fixed deposits and offered valuable gifts to the customers and they did not give high rates to the customers during that time. Now they may have enough money to lend to the customers where they borrowed at lower rates. Am I right or missing something?

3) How do you see the next 3 quarters for Fincos? Saw from Rana's posts that there are some restrictions imposed for Fincos by the Central Bank especially in expansion and Micro financing areas. How would this affect.

4) What may be the fair valuation of a Finco? NAV 2 times? PE 8 times? ROI 25%? DY 5% or more? I have noticed that proper valuation only been done and market realizes the potential of a Finco only in the case of a takeover. Eg: TIFL CFL
All the other times, these are beaten down neglected shares and a real bull needed to lift them going and realizing the potential. Exception is anticipation of future earnings and extraordinary growth. Eg: BLI and COCR

Whatever happens, at present many Fincos are trading below PE 6 times and looks very attractive. Therefore, I think even with high interests and restrictions from Central Bank, they may report reduced earnings but still be ok.

What you noticed is right but to my knowledge, not the best way to look at things. Interest income and expense will depend on how much cash they already had as well. It can be good and bad. SEYB CAR was at 11.3% and now they issued debentures at some cost, the same they have to disburse at higher rate. This net interest margin is what matters. 3.94% for SEYB and not given for AAF.

AAF has smaller numbers so percentage wise will show higher.

I'll answer the question here as I don't want to clutter the other thread.

I have not studied too deeply just understand some basics. We have all got used to Fincos doing similar business to banks but I feel it should not be the case.

Banks and fincos should have different customer base - both lending and deposit wise but there is too much overlapping.

In order to answer your question I have to look at loan book growth and deposit and other borrowing growth rates, which I have not.

Fincos will mainly borrow from banks or through debentures in future than simply asking customer deposits. Most deposits are short term so anyway it will have maturity mismatch issue for them. Fincos don't attract longer tenure deposits like banks. Their lending base is different too, although some are now trying to venture into traditional loans because other areas lack growth and there is a lot of competition. This is why I think there are certain regulations being spoken about regarding these companies. Whatever happens a strong management will find a way to create new growth areas.

There is no special valuation number for fincos. P/B should be the main just like banks but the multiple will depend on factors like ROE, cost to income, net interest margin, loan growth and of course the management. We can see many trading at lower multiples because market expects growth to decline maybe. Some companies already reported give some idea. But there are few relatively attractive picks as well.

[Future123Active Member]

Thanks FG for the reply.

My personal opinion is that there will be a time for a Finco run and many undervalued Fincos would have a good run at least to be fairly valued around PE 8 times.

However, September and December quarters would be a challenge for many banks and Fincos and don't sell your valuable shares cheap after the results.

Hopefully, 2017 would be a much better year where all these problems with interest rates, BOP and budget crisis would have been settled.

I feel that if the prices come down this is the time to collect for the future.

This is only my personal opinion and not a recommendation.

[First Guy]

[You must be registered and logged in to see this image.]

This is just for information. P/E is not the sole thing to look at But it is part of it.

[You must be registered and logged in to see this image.]

Some are overlapped and are not clear. When comparing between them, my rule would be those below the trend line are undervalued. Future growth will decide where they eventually end up. But here seems skewed a bit

CSF and BLI are not there because they are beyond the limits in the chart

[xmartTop contributor]

thanks FG+

waiting for this. look who is on the top

[SLfinancewatch]

I'm expecting VFIN & LFIN to show Great results in this quarter as well..
VFIN 2nd Quarter Annualized EPS : 15.00+
LFIN 2nd Quarter Annualized EPS : 28.00+

[LION]

[You must be registered and logged in to see this image.]

This is just for information. P/E is not the sole thing to look at But it is part of it.

[You must be registered and logged in to see this image.]

Some are overlapped and are not clear. When comparing between them, my rule would be those below the trend line are undervalued. Future growth will decide where they eventually end up. But here seems skewed a bit

CSF and BLI are not there because they are beyond the limits in the chart

SFL Will run 25 level any idea?

[SLfinancewatch]

Ohh.. VFIN 18.50 + EPS
35.81% ROE

much much better than expected..

[pathfinderTop contributor]

Ohh.. VFIN 18.50 + EPS
35.81% ROE

much much better than expected..

This EPS is annualized as per Sep quarter,Annualized 9 months EPS is 15
Anyway good performance.

[Future123Active Member]

Superb performance by VFIN under very difficult conditions. Quarterly EPS is Rs. 4.65. Significant increase in other operating income. Anyone knows what the other operating income consists of?

Slfinancewatch, I saw you predicting Rs. 18 plus  EPS for VFIN. Very good prediction. How it was possible?