Strong corporate earnings so far in 2006

MARKET REPORT: Unrest in the North and the East and bomb attacks targeting a high ranking Police Special Forces officer and an ex-EPDP member of parliament left investor resilience being tested, yet again this week.

Indices while showing a downward trend, fell modestly during the week with the ASPI (All Share Price Index) sliding by a mere 6.3 points or 0.29%, compared to last week.

However the MPI (Milanka Price Index) on the other hand, witnessed a relatively steeper fall compared to the ASPI, falling by 29.3 points or 1.04% to close at 2797.2 points. The relatively higher fall was mainly driven by a reduction in share prices in market heavy weight counters, Dialog and JKH.

Meanwhile trading was limited this week, to 4 trading days with Wednesday being a holiday. JKH was both the highest traded and the highest contributing stock for the week, amid a foreign to foreign crossing which took place on Friday.

The trade, which saw 4.6 million of JKH shares exchange hands, contributed Rs. 590.4 million towards the day's turnover. During the week 6.1 million of JKH shares traded contributing Rs. 781.6 million towards weekly turnover.

As highlighted previously the share price of the counter slid this week, to close at Rs.128 per share, compared to last week's closing price of Rs. 129 per share. JKH shares were seen trading at a high of Rs.130 per share and a low of Rs.127.50 per share for the week.

The significance of the contributions from JKH, was quite evident when comparing the turnover from JKH, to the turnover from Dialog, the second highest contributor towards weekly turnover this week.

Dialog for the week contributed Rs. 95.7 million towards weekly turnover, with 4.6 million of its shares trading.

The counter traded within a thin margin of Rs.21.25 and Rs. 20.50 per share this week, whilst showing a slight 1.2% reduction inshare price Week on Week (WoW) to close at Rs. 20.75 per share.

Banking sector counter Nations Trust remained in investor appetite for yet another week running with 1.3 million of its shares trading this week. The counter contributed Rs.46.2 million towards weekly turnover with the share price showing modest movements during this week.

The counter closed the week at Rs. 22.75 per share remaining unchanged from last week, while within the week the counter was seen trading at a high of Rs.23.75 per share and Rs. 22.75 per share.

Renewed interest was also observed in AHOT properties and Aitken Spence this week. Approximately 1.7 million of AHOT shares traded this week, whilst witnessing a 3.4% dip in share price compared to last week.

The counter closed at Rs. 42.25 per share on Friday, contributing Rs. 77.9 million towards weekly turnover.

Meanwhile Aitken Spence saw a modest 0.1 million of shares trade this week, however managing to contribute a noteworthy Rs. 44.7 million towards weekly turnover.

Activity levels picked up this week, even amid trading being limited to 4 days, with turnover amounting to Rs. 1.4 billion, compared to Rs. 1.3 billion posted during last week.

As highlighted previously the driver of activity this week was the JKH trade, which took place on Friday, excluding which the weekly turnover, amounted to a modest Rs. 814.9 million.

Average Daily turnover for the week amounted to Rs. 351.3 million Foreign participation remained at a significant 69%, with the foreign to foreign crossing on JKH on Friday, leading the way in terms of both foreign purchases and sales for this week.

Foreign purchases amounted to Rs. 954.7million with Rs. 562.9 million coming on Friday alone. While foreign salestotalled Rs. 984.3 million, of which Rs. 591.4 million came through on Friday.

Foreign investors this week were net sellers amounting to Rs. 29.6 million. Among the highest traded stocks this week were, JKH, Blue Diamonds (Non Voting), Vanik Incorporated, Dialog and Ceylinco Seylan.

As expected by us, the volatility continued for yet another week as attacks between LTTE and security forces continued in the Eastern part of the country.

The market activity stood at satisfactory levels with the help of several share crossings that were witnessed during the week, but the indices couldn't hold their ground as investors looked nervously at the peace premise. The All Share Price Index (ASPI) lost 6.3 points during the week to close at 2199.4 points.

Strong corporate earnings so far in 2006 The earnings of the companies listed on the Colombo Stock Exchange (CSE) grew at a Compounded Annual Growth Rate (CAGR) of 32.1% over the last 3 years, which in our opinion was largely fuelled by the signing of the CeaseFire Agreement (CFA) in 2002.

The corporate earnings released so far for the six months ending 30th June 2006 gives encouraging signs for the full year with most business segments continuing to grow in line with our forecasts.

According to our forecasts the CSE would experience a 20% earnings growth in 2006 mainly backed by strong contributions from the telecom sector companies.

However, while we believe that our 20% growth target is achievable during 2006 considering the expansion in the economy we do not rule out the possibilities of a slow down in earnings during the 2nd half of 2006 largely.

We do not expect a change in the weak market sentiment, which was witnessed over the last 2 weeks. However even with uncertainties in the macro front, we expect the activity levels to stay at modest levels, as some investors are likely to look for bargain hunting opportunities in the market place.

"This information has been compiled from sources that we believe to be reliable but we do not hold ourselves responsible for its completeness or accuracy.

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