A Performance Analysis of the PLC’s in the Maldives Stock Exchange: A quick guide to take investment decisions in the Stock Market

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MTCC; one of the major PLCs in Maldives

There are few key ratios that are used internationally to analyse the performance of listed Companies prior to deciding to invest in the shares through the Stock market. The below ratios and analysis will help the investors in Maldives to understand with examples from the few listed Companies in the Stock Exchange. These ratios elicit the profit generating ability, dividend paying capacity and the yield for their investments in comparison with other shares and investment options. Further the ratios also help to assess whether the market price of the share is right and therefore, empowers the investors to bargain.

In other parts of the world where there is a developed stock market, these ratios are widely used by the investors to support themselves and to take informed decisions and therefore its analysed and discussed in detail for the benefit of the present and future investors as a guidance.

Earnings Per Share (EPS) and Earnings Yield (EY)

EPS is a numeric representation of the earnings that the particular organization earned over the course of an year. It is calculated using the following formula: EPS = Profits After Tax / Total Shares issued of the company.

In other words, it reflects the profit earned per share. This ratio shows the company’s ability to generate profits. From an investor’s perspective, the higher the EPS, the better the investment prospect. However, the more the number of shares issued the EPS will be lower. Further, it should be noted that the EPS capacity will be different from industry to industry and the time period of the business cycle of the business, early, growth, mature and recover stages.

The EPS and EY calculation for the PLC’s in Maldives are analysed for the past three years as follows:

  Earnings Per Share Earnings Yield
2020 2019 2018 2020 2019 2018
ATM          0.99          0.62          0.58 48.8% 10.3% 11.4%
BML        60.40     193.08     204.16 28.0% 85.2% 90.0%
MIB          3.00          4.00              – 7.6% 10.9% 0.0%
DHR          9.64        12.39        11.91 9.7% 12.6% 14.4%
OMPL          2.76          4.03          3.64 7.3% 11.3% 10.5%
MTCC        23.72          6.63          6.58 65.6% 30.6% 12.3%
MTDC          0.43          0.56          0.69 4.3% 5.6% 6.9%
STO     109.00     336.00    (162.00) 22.7% 67.2% -53.6%
CPLC              –        (0.46)          0.78 0.0% -1.2% 3.1%

 

EY is expressed as a percentage with the EPS as a proportion to the Market Price (MP) of a share. The formula is: EPS/MP x 100. The investor also should take note of the MP, in evaluating the EY, as it may distort due to sudden changes in the MP due to various other reasons as mentioned below.

The return on investments via share market is twofold usually. First, the dividend received from the Company and secondly, capital gain, i.e. the profit made by selling the shares at a higher price. Theoretically, if the Company makes good profit, i.e. EY is high, it should reflect in the market price even if they don’t issue dividends. Therefore, if part of the profit is declared as dividends, the remaining should reflect in the change in the market price. However, there are so many other reasons why the market price could change as well. Such as strategic announcements by the Company, the overall economic momentum, the change in the interest rates, political and other social conditions etc. The market price also could be reduced if there are bulk transactions due to the sudden exit needs by some shareholders.

However, for some investors, no matter how much the Company earns, but the dividend paid is the most important concern.

Dividend Per Share (DPS) and Dividend Yield (DY)

DPS is simply an average dividend issued per share, thereby dividing the total dividend issued by the total number of shares. When DPS is expressed as a percentage to the market price, it indicates the DY.

DY can be described as the financial ratio that provides a direct measure that is generated from a return of investments that are made in the shares of the company. This is calculated by comparing the dividend per market share to the existing market price per share. Therefore, DY is a very good and the most relevant comparison with other shares and other investment options including other businesses, debt stocks, sukuks and interest-based deposits. However, the different risk factors associated with such investments also need to be taken note in the assessment.

Dividend Per Share Dividends Yield
2020 2019 2018 2020 2019 2018
ATM          0.13          0.13          0.19 6.4% 2.2% 3.8%
BML        15.00        26.00        24.00 7.0% 11.5% 10.6%
MIB  –          1.58              –
DHR          7.23        12.00        11.91 7.3% 12.2% 14.4%
OMPL          2.34          3.30          3.22 6.2% 9.3% 9.3%
MTCC          3.00          2.00          2.00 8.3% 9.2% 3.7%
MTDC          7.71              –              – 77.1% 0.0% 0.0%
STO        60.00        58.00        58.00 12.5% 11.6% 19.2%
CPLC              –              –          0.39 0.0% 0.0% 1.6%

 

Higher figures for both the above ratios signal that the company is doing well. But one must be wary of penny stocks (that lack quality but have high dividend yields) and companies benefiting from one-time gains or excess unused cash which they may use to declare special dividends. Similarly, a low dividend yield may not always imply a bad investment as companies (particularly at nascent or growth stages) may choose to reinvest all their earnings so that shareholders earn good returns in the long term.

Dividend Cover and Dividend Payout Ratios (DPR)

Dividend Cover and Dividend Payout Ratios are measurements to understand the proportion of the dividend payout from the profits earned by the Company for the year. While the Payout Ratio indicates the dividend paid out as a percentage to the profits after tax, the Dividend Cover encapsulates the number of times the company can pay dividends from the net income that is generated by the company.

  Dividend Payout Ratio
  2020 2019 2018
ATM 13% 21% 33%
BML 25% 13% 12%
MIB 39% 0%
DHR 75% 97% 100%
OMPL 85% 81% 87%
MTCC 13% 30% 30%
MTDC 1786% 0% 0%
STO 55% 17% -36%
CPLC 0% 0% 50%

 

Higher the DPR the better for the retail shareholders. However, the Company may not have sufficient reserves for the future investments. In a saturated industry, the major shareholders would also like to pullout the maximum amount of dividend as the opportunities for expansion is limited. Therefore, the retail shareholders could benefit with this situation to reap the benefit of high dividends.

P/E RATIO

The price-to-earnings, or P/E, ratio shows how many times of the EPS is Market Price or how many years it will take to cover up the total investment at the current market price and the earnings. It also indicates if the market is overvaluing or undervaluing the company. One can know the ideal P/E ratio by comparing the current P/E with the company’s historical P/E, with peers, the average industry P/E and the market P/E. For instance, a company with a P/E of 15 may seem expensive when compared to its historical P/E, but may be a good buy if the industry P/E is 18 and the market average is 20.

  Price to Earnings (P/E) Ratio
  2020 2019 2018
ATM          2.05          9.67          8.75
BML          3.57          1.17          1.11
MIB          1.47          1.47
DHR          9.96          8.47          6.72
OMPL        13.69          8.84          9.52
MTCC          1.52          3.27          8.12
MTDC          0.55          0.55          1.01
STO          4.40          1.49
CPLC        32.05

 

P/E ratio is usually used to value mature and stable companies that earn profits. Lower the PE, is better for the shareholder. However, a high PE indicates that the stock is either overvalued (with respect to history and/or peers) or the company’s earnings are expected to grow at a fast pace. But one must keep in mind that companies can boost their P/E ratio by adding debt (thereby constricting equity capital). Also, as future earnings estimates are subjective, it’s better to use past earnings for calculating P/E ratios.

Price to Book value per share

It is calculated by dividing the market price of the share by the net assets per share (NAPS). The NAPS is derived by dividing the net assets by the total number of shares issued. In simple terms it compares the Market price with the book value of the share.

The price-to-book value (P/BV) ratio is used to compare a company’s market price to its book value. Book value, in simple terms, is the total assets less the liabilities that belongs to the shareholders.

  Price to Book Value Ratio
2020 2019 2018
ATM          0.41          1.50          1.74
BML          0.17          0.18          0.21
MIB
DHR          3.04          2.98          2.70
OMPL          4.38          3.88          4.36
MTCC          0.25          0.18          0.43
MTDC
STO          0.22          0.24          0.17
CPLC          0.89          1.08          0.83

 

A P/BV ratio of less than one shows the stock is undervalued (value of assets on the company’s books is more than the value the market is assigning to the company). It indicates a company’s inherent value and is useful in valuing companies whose assets are mostly liquid, for instance, banks and financial institutions. When this ratio is closer or less than 1 and there is high, naturally the EY will also be high. Those shares will be quick buys for the long-term investors. Investors should also seek for shares with standard dividend policies and consistent performers with clear growth agenda for long-term investments.

P.S. All numbers above are based on the published Annual Reports of the respective Companies. The writer has intentionally avoided commenting on the performances of the individual Companies leaving the interpretations to the readers.

Editor’s Note: Fawas has been a frequent writer to the MBR on topics related to Finance and economics. He is a leading consultant and a corporate trainer with a wealth of knowledge and vast experience from diversified industries in Sri Lanka and Maldives. He is passionate in educating the next generation and developing people and organizations.

 

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