HNB Stockbrokers weekly market review

Bargain hunters to resist downward trend

The positive momentum gained in the previous week did not continue, with both indices on a declining trend throughout last week. The ASPI dropped by 20.3 points or 1.16% to close the week at 1724.9 points while, the MPI dropped by a considerable 48 points or 2.04%to close at 2309.9 points on Friday.

Investors seemed cautious towards Nawaloka counters, amids press reports of an investigation by the Securities and Exchange Commission. The share price of Nawaloka, has risen by approximately 142.9% from the beginning of the year, to date. However Nawaloka closed at Rs.8.50 per share this week, showing, price levels holding steady compared to the closing price of the week before. However volumes traded fell substantially with approximately 29.4 million shares traded during the week compared 108.9 million shares the week before.

Nawaloka announced a 1 for 3 Bonus issue and a 1 for 5 rights issue at Rs.4 per share on Wednesday.

The total turnover stood at Rs.2.04 billion, during the 4 trading days. The average daily turnover for the week stood at Rs. 509.9 million, falling by 32.7% compared to last week's average turnover level Rs. 757.6 million.

Nawaloka and Royal Ceramics were among the highest contributors to the week' s turnover, contributing approximately Rs.265.6 million and Rs. 243.8 million respectively. Royal Ceramics volumes for the week stood at 48.8 million, falling substantially compared to 107.8 million traded last week. The counter closed at Rs.4.75 per share, falling from last week's close of Rs.5.50.

Apart from the above Lanka Aluminium contributed around Rs.173.9 million to the total turnover, with approximately 5.6 million shares trading during the week. With the major portion of 4.2 million of volume, being traded on Friday alone. The counter saw its price appreciate considerably by 85.6% closing at Rs.35.25 per share this week, compared to Rs.19 the previous week,.

Foreign investors remained net sellers for the week standing at Rs.50.6 million. Foreign purchases stood at Rs.219.4 million. While foreign sales stood at Rs.270 million. Foreign participation was high at 47.8% of total activity, compared to last week's participation level of just 8.7%.

Among the most heavily traded stock for the week were Royal Ceramics, Nawaloka, Tess Agro, Lanka Aluminium and Lanka hospitals.

Time to capitalize on the debt relief

The Paris Club of creditor nations agreed not to expect any debt payment on eligible sovereign claims from those countries affected by Boxing Day tsunami devastation until Dec. 31. Accordingly Sri Lankan government is expected to enjoy a debt postponement of approximately $328 million during 2005. The resources freed by this measure are expected to filter towards rebuilding the nation and would directly benefit the people affected by the tsunami.

However, it is important that these funds are properly allocated to specific projects, as the present status of the rebuilding exercise seems to be moving at a slow pace.

Therefore we insist the importance of fast capitalising on this relief in order to pass the benefit to the affected people.

Commercial Bank results for FY2004

Earnings up 18%, after preference dividend

Commercial Bank released its results for FY2004 recording a 18% growth in profit attributable to ordinary shareholders to Rs.1.49 billion, after consolidating the Bangladeshi operations.

This was almost in line with our net profit projection of Rs.1.48 billion for FY2004.

Total interest income showed an increase of 28.1% to Rs.9.78 billion, on the back of an impressive 36% growth (YoY) in the loan book. However this growth could be mainly attributed to the inclusion of loans from Bangladeshi operations, which the management attributed as approximately 10% of the total loan book size.

Commercial continued to maintain its interest spreads, as the net interest income jumped up by 26% to Rs.4.74 billion, despite a 29.9% increase in the interest expense.

We believe Commercial's clean loan book will grow at 15% during FY2005 and the debenture and preference share issues have provided a low cost fund base to facilitate such growth. Therefore we maintain our Buy recommendation at the current price levels.