Wednesday, July 13, 2011

Softlogic makes Expolanka look good

Softlogic Holdings Plc yesterday opened trading at Rs.4 below the Initial Offering Price, further displaying investor displeasure towards low priced pre-IPO private placements, a trend set by Sri Lankan companies in recent times.


Prior to the announcement of going public by issuing 139 million shares each at Rs.29, to raise Rs.4 billion, the same share was offered by Softlogic Holdings at Rs.7.20 in a private placement deal to several private parties, one and a half years back.

Softlogic shares yesterday opened at Rs.25, down Rs.4 from the IPO price of Rs.19. Then the share started its downward journey hitting as low as Rs.16.20. However, the share closed at Rs.18 and the average price for the day was Rs.19.85.

The volume of shares traded on its maiden day was 21.07 million, which contributed Rs.418 million to the day’s turnover.

“The message was given during the trading of Expolanka shares initially. The share opened at the IPO price and still trading below the offering price.

The same message was given even more clearly by the investors this time with Softlogic Holdings’ share”, a stock market analyst who did not want to be named told Mirror Business.Expolanka, largely a freight forwarding conglomerate which came to the market, conducted a private placement way below the offered price of Rs.14, which became a bone of contention among the investor, analyst and broker communities for sometime.

“The fear is always there in the minds of investors as to what will happen if the parties who bought shares in private deals at low prices dump them?” the analyst commented.

Making this fear quite material, the Colombo bourse was abuzz yesterday that a private placement party of Softlogic partly disposed its holdings at Rs.20 levels. It is believed that Carson Group subsidiaries, Ceylon Investments and Ceylon Guardian Investment Trust which held 14 million and 13.77 million respectively from the private placement sold off their stakes partly.

However in an earlier interview with the Mirror Business, Soflogic Chairman and Managing Director Ashok Pathirage said that the price difference between the IPO price and offer price was solely due to valuations.

“The price difference is solely done on valuations. During the time we went for a private placement, the forecasted profit was around Rs.150-200 million. But for the year ended March 2010/11, we have made Rs.855 million after tax profit” Pathirage said.

“The IPO price is based on the expected net profit for FY 2011/12, which we anticipate to be Rs.1.8 billion. Our valuations are based on 12 times of P/E of the conglomerate sector. We are in fact giving our share at a 40 percent discount to the current P/E levels of conglomerates,” Pathirage added.

According to a five-year forecast of the company, the post tax profit is expected to go up to Rs.1.8 billion in 2012 and to Rs.2.7 billion in 2013. The expected profit in 2014 is Rs.3.1 billion.

Despite the opening day slump of the Softlogic share, all the research reports of stockbroking firms recommended the share as a ‘buy’ to their clients and investors.

source - www.dailymirror.lk

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