Thursday, March 29, 2012

Bangladesh and Sri Lanka

OK, so I took a closer look at the Singer operations in Bangladesh and Sri Lanka  (this is a post-script to the Retail Holdings post).

Sum of the parts is a good and fine, but if the underlying stocks are overvalued or trading at silly levels, then it doesn't matter if something is trading at a 50% discount to the sum-of-the-parts (unless you can buy the parent and short the subsidiaries).

So anyway, I just wanted to take a quick look at Singer Bangladesh and Singer Sri Lanka to see if it is reasonably valued, not that I would know what stocks traded in these markets are worth.

All I need is for reasonable valuations, not something bubble-like and silly and I would be happy.

First, let's do the easy one.  Singer Sri Lanka has already published their 2011 annual report.  You can get it on their website and it's in English.  So this wasn't a hard one to do.  Singer Bangladesh is trickier as they haven't published their 2011 report yet even though the ReHo annual report shows 2011 full year sales and operating earnings.  Also, 2010 was an abnormal year for Singer Bangladesh as they booked a huge gain on a sale.

Singer Sri Lanka
Anyway, let's take a look at Singer Sri Lanka first.

Here is some historical data from their annual report.

Sales growth has averaged around 18%/year since 2002 and pretax profits have grown +24%/year.  EPS has grown +22%/year.  Since the end of the civil war in 2009, sales grew +35% in 2010 and 37% in 2011.  If this is a country specific issue (end of civil war), then this trend may continue and if so, Singer Sri Lanka can be worth quite a bit.

At year-end 2011, the p/e ratio of Singer Sri Lanka was 13x, but the price has come down to a recent 107 Rupees, for a p/e ratio of 10.6x.  That's pretty cheap for a company that has grown sales and earnings in the past decade with accelerating growth and with very good return on average net assets.

Of course, this is an emerging market so there are political and other risks that I can't quite quantify.  But if money starts moving back into emerging markets (money has been moving out recently since the financial crisis), I can easily see this trading at a higher multiple.

The average year-end p/e ratio since 2002 just so happens to be 13x.  (So the year-end 'mark-to-market' of Singer Sri Lanka on ReHo's books is not unreasonable at all).

So Singer Sri Lanka's valuation passes the smell test, at least the initial pass.

Singer Bangladesh

Here is the historical data for Singer Bangladesh, but only going up to year-end 2010.  The 2011 annual report is not out yet.  I will post an update when that comes out.  But for now, let's look at this one:

I just wanted to get a p/e ratio on recent earnings, but 2010 had a huge gain on a sale of a subsidiary and the 2011 figures are not available yet.

So first, we can just look at a normalized earnings figure for 2010.  In 2010, they had a gain of 1.8 billion Taka, so their operating profit excluding that would have been 470 million Taka.  Using a 27.5% tax rate, that's gives an after tax profit of 340 million Taka.  With 3.93 million shares outstanding, that's an EPS of  around 87 Taka.  The stock is trading at 2,180 so that gives a p/e ratio of 25x.

The average p/e ratio of Singer Bangladesh since 2001 has been 22x (excluding 2010 which had the huge gain and showed a p/e ratio of 8.2x).

So Singer Bangladesh is trading at pretty much where it always trades, with a high above 30x p/e and a low p/e of 11x (on a year-end basis).

For the first nine months of 2011, Singer Bangladesh had an EPS of 79.18, so just doing a simple 4/3 annualization of that gives an EPS of around 100, which would give a p/e ratio of 22x.

So on this basis, 22x p/e seems to be just about the average p/e for this stock since 2001.  Singer Bangladesh has grown sales 16%/year between 2001 and 2010, and as stated in the ReHo 2011 annual report, on a tax adjusted basis, sales grew 14% in 2011.

It seems that it is growing well along with the economy.

I just took a quick look at these entities that are the two big components of Singer Asia/Retail Holdings' value.  Of course, this is not meant to be an in depth look/research into these companies.  That would be difficult as the historical annual reports are not available and these companies do not file 20-F or 10-K's.

But even a quick look like this would give quite a bit more comfort than the usual sum-of-the-parts, "hey, this stock is trading for way less than the sum of their listed holdings!".

At least we know that things are not ridiculously overvalued or anything like that.

Anyway, I do intend to follow this as further details are announced (Singer Bangladesh's 2011 annual report etc...), so stay tuned.


  1. Could you post the cost of equity of Singer BD within the time period of 2001 to 2012