KATHMANDU, MAR 22, 2012
The banking sector that is the key player in the share market in terms of volume and returns till date, is correctly priced, if one goes by the average price-to-earnings ratio (PE ratio) of the listed banks, though they might not be able to pay returns as compared to a few years back.
The average PE ratio — that measures the price paid for a unit of share relative to the annual net income or profit earned by the company per unit — of the 25 listed banks stands at 17.60 times, which is the correct pricing. “It stood at 19.55 times in the second quarter of the last fiscal year.”
Similarly, a PE ratio under 10 means the stocks are under priced. “But the current average PE ratio of 17.60 times means that shares of banks are correctly priced but they may not be able to pay dividends as compared to a previous years as other indicators do not support it,” said share market analyst Rabindra Bhattarai.
Investors should buy stocks that have a high return on assets and low price-to-earnings (PE) ratio, he added. Return on assets (RoE) — that reveals how profitable a company’s assets are in generating revenue — has come down to 1.21 per cent in the second quarter of the current fiscal year from 1.75 per cent during the same period in the last fiscal year.
Similarly, low PE ratio has not been able to make investors comfortable as other key indicators of listed banks; like earning per share, return on equity, capital adequacy ratio, cost of fund and non performing assets could not ensure equal dividends compared to last fiscal year.
The measuring rod of the rate of return on shareholders’ equity of the common share holders, return on equity (RoE) has also come down to 11.54 per cent in the second quarter of this fiscal year from 17.17 per cent in the same period last year. It also revealed the efficiency of banks in generating profits from every unit of shareholders’ equity.
Similarly, earning per share — that is the amount of earnings per unit share — came down to an average of Rs 19.68 per unit in the second quarter of the current fiscal year as compared to Rs 25.98 per unit in the same period of the last fiscal year, which means shares could not earn as much as they earned thus investors will also get less returns.
Similarly, non performing assets (NPA) — that compels banks to make loan loss provisioning which hits their profits — has increased to 3.24 per cent from 2.49 per cent of the second quarter of last year, which means investors will get less dividends next year. NPA of some banks have reached the highest accepted level by the central bank, which will ban the banks to open new branches after they cross the minimum NPA level.
However, the capital adequacy ratio (CAR) has seen an increase to 14.04 per cent from 13.59 per cent of the second quarter of last fiscal year. The increase in capital adequacy ratio — that is a ratio of a bank’s capital to its risk to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements — shows further growth possibility of the banks through lending, which has contracted lately.
The central bank’s data has revealed that banks have a liquidity of Rs 29 billion till March 12. High interest rate has made the private sector shy away from borrowing despite banks sitting on surplus liquidity.
Banks have been unable to lower the interest on lending due to high cost of fund, which has increased to 8.38 per cent from 7.39 per cent in the same period last year. The cost of fund that is the interest paid on deposits has also forced banks to lower new deposit rates.
The industry average not only helps investors take informed decisions while buying shares but also helps compare the players within the sector on where they stand.
The banking sector that is the key player in the share market in terms of volume and returns till date, is correctly priced, if one goes by the average price-to-earnings ratio (PE ratio) of the listed banks, though they might not be able to pay returns as compared to a few years back.
The average PE ratio — that measures the price paid for a unit of share relative to the annual net income or profit earned by the company per unit — of the 25 listed banks stands at 17.60 times, which is the correct pricing. “It stood at 19.55 times in the second quarter of the last fiscal year.”
Similarly, a PE ratio under 10 means the stocks are under priced. “But the current average PE ratio of 17.60 times means that shares of banks are correctly priced but they may not be able to pay dividends as compared to a previous years as other indicators do not support it,” said share market analyst Rabindra Bhattarai.
Investors should buy stocks that have a high return on assets and low price-to-earnings (PE) ratio, he added. Return on assets (RoE) — that reveals how profitable a company’s assets are in generating revenue — has come down to 1.21 per cent in the second quarter of the current fiscal year from 1.75 per cent during the same period in the last fiscal year.
Similarly, low PE ratio has not been able to make investors comfortable as other key indicators of listed banks; like earning per share, return on equity, capital adequacy ratio, cost of fund and non performing assets could not ensure equal dividends compared to last fiscal year.
The measuring rod of the rate of return on shareholders’ equity of the common share holders, return on equity (RoE) has also come down to 11.54 per cent in the second quarter of this fiscal year from 17.17 per cent in the same period last year. It also revealed the efficiency of banks in generating profits from every unit of shareholders’ equity.
Similarly, earning per share — that is the amount of earnings per unit share — came down to an average of Rs 19.68 per unit in the second quarter of the current fiscal year as compared to Rs 25.98 per unit in the same period of the last fiscal year, which means shares could not earn as much as they earned thus investors will also get less returns.
Similarly, non performing assets (NPA) — that compels banks to make loan loss provisioning which hits their profits — has increased to 3.24 per cent from 2.49 per cent of the second quarter of last year, which means investors will get less dividends next year. NPA of some banks have reached the highest accepted level by the central bank, which will ban the banks to open new branches after they cross the minimum NPA level.
However, the capital adequacy ratio (CAR) has seen an increase to 14.04 per cent from 13.59 per cent of the second quarter of last fiscal year. The increase in capital adequacy ratio — that is a ratio of a bank’s capital to its risk to ensure that it can absorb a reasonable amount of loss and complies with statutory capital requirements — shows further growth possibility of the banks through lending, which has contracted lately.
The central bank’s data has revealed that banks have a liquidity of Rs 29 billion till March 12. High interest rate has made the private sector shy away from borrowing despite banks sitting on surplus liquidity.
Banks have been unable to lower the interest on lending due to high cost of fund, which has increased to 8.38 per cent from 7.39 per cent in the same period last year. The cost of fund that is the interest paid on deposits has also forced banks to lower new deposit rates.
The industry average not only helps investors take informed decisions while buying shares but also helps compare the players within the sector on where they stand.
Source: THT
No comments:
Post a Comment