Sunday, February 21, 2010

SRI LANKA - CW Mackie PLC (CWM) - Good Times Ahead!


Salient features 
  • Share is worth approximately in the range Rs 65/= on the basis of varied valuations. 
  • One of the largest Exporters of Natural Rubber and Desiccated Coconut in Sri Lanka. Company exports approximately 3,500MT of Crepe Rubber, 4,000MT of Tech.Sp.Rubber and 3,000MT of Desiccated Coconuts.  
  • Strong Local Distribution Network for branded consumer products. 
  • Valuable land base which include a Long Term Leasehold ownership of prime property in Colombo ideal for development. 
  • State of the art bottling plant for Bottling of renowned "Sun Quick" range of products under franchise and "Scan" Drinking water. Company bottle and distribute approximately 2mn liters' of "Sunquick" and 3mn liters' of "Scan" bottled water per annum respectively. 
  • Importer and wholesale distributor of approximately 15,000MT of Sugar.
  • Import and resale of Industrial and Light Engineering products.
  • Agent for "Hempel" marine paint and protective coatings.

Company Profile
The CW Mackie was founded in 1900 by the late Mr C.W.Mackie a Scotsman, who carried on the enterprise as Merchants and Commissions Agents under the name of 'CW Mackie & Company'. In 1922, the business was incorporated as a private limited company. In 1946, a consortium of Ceylonese and Indian Businessman bought over the shares of the company and converted it to a public company.

The year 1971 marked a significant change when Ceylon Trading Company Limited, the Sri Lanka based subsidiary of Aarhus United A/S of Denmark, bought a part of the Indian shareholding and took over the management of the company. In late 1994, shares equivalent to 25% of the total shares in the company were issued to the public so as to broad-base the ownership of and give the Company greater access to the capital market of Sri Lanka to raise capital funds for the future diversifications and expansions.

The Group consist of CW Mackie PLC and three subsidiary companies engaged in a diversity of activities such as export of primary and manufactured products, ranging from all types of natural rubber and coconut products to rubber based products; import, manufacture and distribution of sugar; import and resale of branded marine paints and protective coatings, welding equipment and consumables, refrigeration and air-conditioning and light engineering products.

Market Prices
The price movement of CW Mackie shares during the period from 18th February to 19th February 2010 are depicted in the graph below.

The highest traded price (year to date)  - Rs. 43.25
The lowest traded price (year to date)  - Rs. 11.00
The current trading price (19/02/2010) - Rs. 41.75

The share price does not reflect the true value of the company as the liquidity of the share is less than 10%. Three largest shareholders namely Lankem Ceylon PLC, Kotagala Plantation PLC and high networth investor Dr Thirugnanasambandar Senthilverl owns approximately 90% of the issued share capital of the company.

Price Earnings (PE) Multiple Valuation
Net earnings of the current year ending 31st December 2009, are estimated considering the earnings made by the Company up to 30th June 2009 and assuming the past trend of earnings to continue for the balance period while accounting for recent market conditions.

The current Market PER of the Colombo Stock Exchange is around 18 times. However, for the purpose of valuation we have assumed a realistic PER of 15.0 times. Accordingly the FY 2009 PER based valuation of the Company is approximately Rs. 62 per share.

Dividend Yield Based Valuation
Dividends based valuation is determined on the basis of 15% annual rate of Dividend growth and Terminal value derived through an exit price calculated linked to the current market dividend yield. Average dividend growth rate of 15% assumed as a against the Company's forecast dividend growth rate of 33%. Also Cost of Capital/Discount Rate of 20% is assumed for the purpose of discounting future dividends and exit proceeds. No Dividend tax is considered.

Net Asset Value / Price to Book Value
The Net Asset Value is estimated based on the Balance Sheet of the Company as at 30th June 2009. Net Asset Value considers the market value of the assets after deducting the total liabilities divided by the number of ordinary shares in issue.

Considering the Net Asset Value per share computed above, we have estimated below the value per share based on the Price to Book Value (P/BV) ratios of the market as well as the Trading Sector Stocks of the Colombo Stock Exchange. Accordingly the FY 2009 PBV based valuation of the Company is approximately Rs. 76 per share.

* above valuation include adjustment of Rs 800mn assuming that the 253 perch property of CW Mackie PLC located at # 34, 36 DR Wijewardena Mawatha which is leased from the Urban Development Authority (UDA) is extended for a further period. Adjustment assumes the market value of the freehold property .

Why CW Mackie PLC is a strategic fit for Lankem Group?
  • Lankem owns Rubber Plantation Companies and ownership of CW Mackie will enhance the value chain in a typical forward integration.
  • EB Creasey and Darley Butler and Company would benefit through the integration of Distribution arm of CW Mackie and the "Scan" product range. This will allow better market penetration and lower cost of distribution.
  • CW Mackie leasehold ownership of property down DR Wijewardena Mw, is considered to be valued over Rs1bn. This property is facing the road frontage from one side and Beira Lake Frontage from the other. This is an ideal location for mixed development or a recreation facility under a selected theme.

Estimated Value per Share
In terms of the valuations carried out with regard to the earnings potential, dividend yield and the asset base of the Company and with due consideration of the current market price, liquidity of the stock and the potential of the trading sector in the country and other concerns with regard to the industry, country and global market as a whole, it is estimated that the value of Ordinary Shares of C W Mackie Co. PLC would be in the range of Rs. 65 per share.

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