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By Chandani Jayatilleke and Ravi Ladduwahetty

The market capitalisation of the Colombo Stock Exchange (CSE) is expected to increase dramatically between 16 and 18 percent or between Rs. 27 and Rs.30 billion from the present Rs. 170 billion with the Sri Lanka Telecom (SLT) shares entering the Bourse today.

Heads of Research of stock broking firm told the Daily News that the SLT profits, dividends and the growth potential should ensure the rapid rise in the stocks of the telecommunication giant, a new sector to enter the market.

DFCC Stock Brokers Head of Research Jayantha Perera said: "Based on the free cash flow, the intrinsic value of Sri Lanka Telecom share is Rs. 28.20 and the issue price at Rs. 15 giving it an upside potential of around 85%. We see the stocks having value at Rs. 28 to 27."

"We used the detailed valuation method and we have used very high requirements for the rate of return. Given the required rate of return of equity of 24.28 percent, we have ascertained the value of SLT share at Rs. 24. 87. We see an upside for the SLT share in the mid-term.

Asked to comment on the potential influence of SLT share on the Colombo bourse today, he said SLT surely dominates the market activity and will contribute a substantial portion of the daily trade volume. Even its market size of 1.8 billion shares will definitely see the market capitalisation by about Rs. 30 billion which in turn is around 18 percent of the total CSE market capitalisation.

HNB Stock Brokers Head of Research Rohan Suppiah said: "We believe the long term fundamentals of SLT are right and based on the infrastructure of the country and with the conversion of Mobitel to a GSM network by SLT, it gives SLT the full capability to be a complete telecom provider.

Although the earnings for the next two years will be held back, by expansion expenditure the long-term earnings potential is where the key value of SLT is. Despite the size of the issue and its unprecedented value in the CSE, much will depend on market liquidity.

Chairman of the Stock Brokers Association and GM/CEO, HNB Stock Brokers, Deva Ellepola said that the greatest contention on SLT share is where it could help Sri Lanka's capital market to be included in Morgan Stanley Capital Index (MSCI).

It is envisaged that the powers that be will make a very strong claim for SLT and Sri Lanka to be included in the MSCI which will enable the creation of a framework which enables foreign fund managers to re-look at Sri Lanka.

It is also important that major privatisations such as Sri Lanka Insurance Corporation and other large state entities be listed in the CSE which will not only increase the market capitalisation but also create a share owning democracy.

SLT last week reported a 38 percent increase in after tax profits for the nine months ending September 30, 2002.

Net profits increased to Rs. 2,425 million from Rs. 1,763 million in 2001.

Its revenues rose 15 percent to Rs. 18,579 million, up from Rs. 16,159 million during the corresponding period in 2001. SLT also announced a three percent interim dividend for the financial year 2002.

Indices up

Meanwhile, yesterday's trading saw the bourse recording a turnover of Rs. 88.64 million, down from Rs. 387 million on Friday, largely attributable to the Apollo share entering the market for the first time.

However, the ASPI increased by 1.5 points to 841.7 and Milanka by 7.4 points to 1411.1. Foreign sales accounted for Rs. 24 million and sales for Rs. 6 million, making a net foreign inflow of Rs.18 million. Market analysts said that 1.4 million shares of Apollo were also traded yesterday at prices ranging from Rs. 17.75 to Rs. 18.75, contributing Rs. 27 million of the day's total turnover.

The highlight of the Apollo trading was NDB selling a slab of one million shares of Apollo to AL-Nakib family of Kuwait.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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