Banks share price in line with fundamentals
-notes analyst
Stabroek News
March 26, 2004
Banks DIH's share price simply reflects its performance in recent years which has seen declining rates of return on its investments, says one analyst.
In an address to Banks DIH shareholders in New Amsterdam on Sunday, Chairman and CEO Clifford Reis questioned his company's shares valuation on the stock exchange.
"I am very concerned about who are the persons involved in trying to manoeuvre the company's shares, Reis said and declared that the price according to the balance sheet was $10.31. Stock exchange officials, were quick to refute any suggestion of manipulating, issuing a detailed press release on Wednesday outlining the share's transactions, since trading began. Yesterday Reis was said to be discussing the issue with the company's directors.
The analyst, contacted by Stabroek Business, questions Reis' valuation, first noting it is based on the price before the 1 for 4-share bonus issue. This would set the shares, based solely on the net asset value, at $8.25.
Stock exchange officials have also noted that there are 4m shares on offer and this week no bids for them thus putting tremendous pressure on sellers to lower their price to get their shares sold. As the gasci (www.gasci.com) website notes:
"An imbalance between the volume bid and offered indicates that there is excess demand (if bids exceed offers) or supply (if offers exceed bids) which may put upward or downwards pressure on prices respectively since with excess demand buyers will have to outbid each offer for the scarce amount of stock on offer while with excess supply sellers will have to undercut each other to get the shares away to a limited number of buyers."
An official also says that before the bonus issue the share price was $6.2 which meant it should have fallen to $4.96. Instead it stands at $5.9 although the analyst notes that the bonus is not always fully reflected in the share price.
The analyst points out that Banks' profitability since 1999 has been in decline, with after tax return on equity decreasing from 13% in 1999 to 7.9% in 2003. While revenues have increased, net profit for the group has only increased from $631M in 1999 to $666M in 2003. The cash cost of dividend payouts rose from $165M in 2000 to $190M in 2001 and 2002 but fell to $155M in 2003.
And for the average shareholder it is the dividend yield, equivalent to the interest on a savings account, that is a strong motivator in why shares are bought and sold. In 2003, Banks declared a dividend of 22 cents down from 27 cents in 2002. At the current share price of $5.90 and taking into account the bonus issue this gives a dividend yield of 3%.
Hardly stellar, says the analyst, compared to the other companies on the exchange. GBTI's yield is 5.4%. DDL is at 4% and Demtoco is at 11.3%. The analyst notes that while Banks is to invest $780M this year, given declining returns on capital, it might be better off returning that money to shareholders. That would be one way to see its share price improve.