Guardian Group reports Rs.2.3 b profit after tax for FY13

Monday, 15 July 2013 11:46 - - {{hitsCtrl.values.hits}}

Ceylon Guardian Investment Trust PLC, an investment group which is part of Carson Cumberbatch PLC, has recorded a profit after tax of Rs. 2.29 billion for the FY 2012/13, an encouraging performance despite volatile market conditions. Guardian’s above average performance was attributed by the Investment Managers in their report to shareholders “to booking of profits on selected overvalued stocks, capturing market anomalies and thereby realising substantial capital gains despite volatile market conditions.” Guardian’s portfolio as at end March is reported to be Rs. 26 billion. The portfolio is managed by an in-house professional team attached to Guardian Fund Management Limited, a fund management company licensed by the Securities and Exchange Commission of Sri Lanka. Guardian Group’s total portfolio value has decreased to Rs. 26.03 billion, from Rs. 28.05 billion a year earlier; recording a depreciation of 7.2% vis-à-vis a 5.8% increase in the benchmark All Share Index and 10.3% appreciation Standard & Poor’s Sri Lanka 20 Index. However, the actively managed component of the Guardian portfolio amounting to Rs. 11.6 billion has grown 10.4% in comparison with the ASPI growth of 5.8% and S&P SL20 of 10.3%. On medium term performance, five year compound annual portfolio growth rate of the actively managed portfolio was 22.6% on market value basis, vis à-vis an All Share Index growth of 17.6%. The long term track record of Ceylon Guardian, which is attributed to its investment philosophy of selective bottom up investing, is thus highlighted. The intrinsic value per share of the company is stated at Rs. 247.48 on a market price based net asset valuation of the portfolio, given that the balance sheet is now stated at market value taking into account IFRS methodology. Hence the share price theoretically must represent the net asset value per share; however the market price at end March at Rs. 160, trades at a discount of 35% from the intrinsic value. The company proposes a final dividend of Rs. 2.50 per share, an improvement on the dividend of Rs. 2.00 paid in 2011/12. The company has been trying to maintain a consistent dividend policy to match shareholder expectations despite the vagaries of the stock market. The dividend yield of the company has increased to 1.6%, owing to the share price coming down. Total shareholder return for the year 2012/13 has been a negative 29.2% taking into account both share price drop and cash dividend received for the year. Taking a longer term horizon the shareholders of Ceylon Guardian has got a return of 40.8% p.a. on average over the last five years in comparison to market benchmark performance of 17.6%. Thus shareholder returns in CGIT have grown well in excess of the market. Guardian Fund Management: The Investment Managers The initiative of managing and growing assets under management (AUM) of the Guardian Group has been entrusted to Guardian Fund Management Limited (GFM) the asset management company. In managing the largest listed equity fund in Sri Lanka, GFM has built up its competencies in the field of portfolio management, research and support services. GFM manages the Sri Lanka Fund a dedicated country fund for Sri Lanka aimed at foreign investors. The company has extended its business model to capture retail portfolio management by promoting and managing unit trust funds via a joint venture partnership (Guardian Acuity Asset Management Ltd.) with Acuity Partners (Private) Ltd., the investment banking arm of DFCC and HNB The company has a professional outfit set up with an effective compliance process, code of ethics and standards of professional conduct for employees. Guardian Fund Management has expanded its operation by extending its fund management capabilities to companies outside the Group and built a portfolio of external clients amounting to almost Rs. 2 billion consisting of provident funds, pension funds, and corporate clients. In managing external client and mutual funds, GFM leverages the expertise it has built on managing its own proprietary funds, a unique advantage it has, as opposed to fund managers who only manage outsourced portfolios. Investment strategy GFM investment strategy is based on a fundamental bottom-up approach, representing a more micro level stock specific style. Company-level valuations are done to determine the intrinsic value of the investee company and determine whether a stock is fairly valued in terms of intrinsic value. This would initiate a buy or sell on the universe of stocks covered by the GFM research team. This is in contrast to some investors who take a top-down approach to investing, whereby macro level analysis is complemented with a view of market and sectors. However, when investing, GFM looks at the macro level picture as well, to determine the attractiveness of the external environment. Similarly, Guardian may totally get out of a stock and remain in cash until such time as it discovers a potential undervalued company that fits its investment profile and philosophy. The Guardian portfolio continues to lean heavily on the diversified sector, which is a proxy for most growth sectors of the economy. The group is also bullish on the healthcare sector, which it believes will yield good returns taking a longer cycle with demand for private health care increasing. A neutral stance has been taken on the banking and finance sector and Guardian states that it would look to build on it at opportune time at attractive price levels. Portfolio concentration on a few sectors which has matched its investment style has limited Guardian in terms of diversity and risk. However, conviction in investing in what it knows best in terms of industry potential, growth, risk factors and competition has so far been a critical success factor for Guardian. During the year ended 31 March 2013, Ceylon Guardian Group made Rs. 1.57 billion of new investments and Rs. 2.77 billion of divestments. Hence, Ceylon Guardian has been a net seller in the market, whereby a cash position of Rs. 2.69 billion was built in keeping with the strategy of divesting when investee companies share prices go beyond intrinsic prices. Looking forward, Guardian takes the position that in a growing economy good quality investment opportunities would come its way, and that managing volatility in the current environment would be a challenge that it would face.