Sep 11, 2009 (LBO) - Sri Lanka's stocks are riding a bull that has so far taken the benchmark index up 85.0 percent so far in 2009, on prospects of renewed growth after the end of a 30-year war, and hotels are leading the charge.
Arrivals are already showing a sharp upturn from war wracked levels. Most hotels are booked up for the coming winter season. In August arrivals were up 34.0 percent over a year earlier.
Prospects for tourism have never been brighter, despite a global downturn.
A hotel, even if it does not build new rooms, also stands to ratchet up revenue at least in the coming seasons, simply by jacking up room rates, with hardly any marginal additional expenditure.
But the flogging of some hotels stocks by euphoric punters is beginning to raise eyebrows.
One stock that makes spectators on the stands wonder is Beruwala Walk Inn. The stock trades at around 66.0 rupees, from 25.75 on January 07.
Beruwala Walk Inn owns 'Hotel Swanee' which was damaged in the 2004 tsunami and is not operating. In the half-year to June it lost 19.9 million rupees.
It has no revenue and has net debt of 273 million rupees. In addition it owes 181 million rupees to its parent Banyan Tree Holdings which owns 80 percent of the stock.
Book value is a negative 426.7 rupees per share and losses per share is 22.10 rupees.
No problem.
The stock is only up 150 percent so far this year.
Marawila Resorts Ltd is another hot potato, sorry, stock.
The firm is losing money and had accumulated losses of 828.8 million rupees. Auditors said the company had not settled statutory payments and penalties.
"Delay in settlement of statutory payments could result in additional penalties and other legal implications," auditors KPMG said.
Current liabilities exceeded current assets by 137.9 million rupees.
Auditors qualified the accounts and raised doubts whether it can continue as a going concern.
Punters simply cannot be bothered with such pesky details.
The stock traded at 9.00 rupees this week, more than double the May 04 price of 4.40 rupees. From January 03, when the stock trade at 3.10 rupees, Marawila is up 190 percent.
According to Colombo Stock Exchange data the market price earnings multiple is 12.83 times on historical earnings. For the hotel sector it is 58.4.
But everyone knows that forward earnings will bring down the multiples to single digits eventually. It’s a sure thing.
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