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Monday, 19 August 2013 00:00 - - {{hitsCtrl.values.hits}}
With a majority of companies releasing their 2Q2013/1Q2013 corporate results, First Capital Equities says it is encouraging to note that despite the rise in operating costs (on account of the surge in energy prices and its multiplier effect), companies in the investment universe have been able to maintain their operating margins, albeit recording only a marginal decline of 0.4% YoY.
“Despite interest costs remaining high during the quarter, consolidated net margins have meanwhile remained flat (rising by 0.2% YoY),” First Capital Equities added.
On a sector basis, reflecting the narrowing of spreads during the quarter, banks in First Capital Equities’ range have reported a 4.4% decline in operating margins while recording a 3.4% fall in net margins on the back of lower other income generation.
Despite higher operating costs, the manufacturing sector reported a 2% rise in operating margins with net margins growing faster, rising by 6.6% during 1Q2013. The diversified sector meanwhile maintained relatively stable margins both at operating and net levels, at 10.8% and 7.0% respectively.
Operating margins for the hotel sector, however, declined by 2.1% reflecting a hike in operating expenses although net margins surged by 3.9% as a result of higher other income.
Meanwhile, higher volume growth has enabled the F&B sector to report a 1% rise in operating margins to 15.3% while net margins have remained stable during the quarter.
“With volumes declining significantly, the motor sector experienced notable erosion in operating margins which fell by 3.1% to 9.6%, while also suffering from increased interest costs which resulted in net margins falling by 1.9% to 6.7%,” First Capital Equities added.
Commenting on the outlook of the market, the broking firm said market consolidation will allow earnings to catch up.
“Although the current sideways market movement is vitally important in our view to provide investors with an opportunity to restructure their portfolios, knock out dead wood and fly to quality, it also has the added advantage of giving the market the opportunity to allow earnings to catch up, thereby compressing PE multiples.
“This consolidation will consequently provide a solid foundation for the Sri Lankan Bourse to enter a stable growth period with robust macroeconomic conditions providing the necessary tailwind. The net effect would be a lower PEG that should attract investment into the Bourse which could result in healthier turnover levels,” First Capital Equities said.
