Dividend Analysis : LB FINANCE PLC(LFIN.N0000)

If you have not being following my blog from the beginning, this is a continuation of series of articles which I'm searching for undervalued dividend paying counters in CSE. I started the search after Scanning The Market for potential companies using CSE Screener. I looked at NDB and GLAS before. This time I'm looking at LFIN.

A Word of Caution

First I need to confess that I'm doing this based on one assumption. That is, "My initial screening revealed most under valued yet financially strong dividend paying shares in CSE". I have set my screening criteria in a way, so that I don't have to dig deep in to the financials. That make everything simple and I highly appreciate the simplicity in decision making process. 

I may be missing a hidden value of a company by not analyzing deeply. But the important thing is, it is safer to invest on something which I can understand in 30 minutes rather than a day. On the other hand there may be hidden risks too. But Cheaper valuation and higher dividend yield should protect me from those risks. That is why you find my posts are not that lengthy or full of numbers. I try to keep it short and sweet by being more graphical, so that a non financial person could digest the content in 10 minutes.

 

LB FINANCE PLC(LFIN.N0000)

I looked at the last annual report of LFIN. There is a special section I look at in any annual report. That is the ten year summary or decade at a glance. For my disappointment some of the information I wanted was not there. EPS was there but dividends per share(DPS) and average market price wasn't there. After going through the CSE data base and meddling with DFN data sniffer for a while (will share this tool in a separate post), I managed to gather the data I was looking for.

They only started paying dividends in 2008 and for the last 6 years they have been doing that consistently. I like consistent dividend paying companies. And their earnings also seems to be following the same trend.

Payout ratio is 27%. Earnings were flat for the last 2 years, but dividends were increased by 30%. That massive dividend increase make LFIN more attractive to me. Also have to mention that LFIN is trading near 3 year low now.

This is a simulation of annualised gain with dividend investing and YOY trading.

Light Blue line indicate the YOY loss or gain

Dark Blue line is the annualized gain with dividend being re-invested

Red line is the annualized gain without dividend being re-invested

 
Interesting to note:

• In 2010 LFIN price hiked from Rs. 30 to 170 in seven months. But there wasn't a crash as one would expect after such a massive hike.

• They paid a Rs.5/= dividend when EPS was little more than Rs.7/= in 2010. Now EPS is Rs.24/= and the pay Rs.6.5/= dividend.

• From the financials, Debt/Equity ratio of 9.4 is bit disturbing to me. With compared to NDB(1.5) and NTB(1.9) which sowed up in my initial screening, this is a highly leveraged company.

 

Conclusion

With dropping interest rates and expected economical recovery in 2014, I'm going to keep LFIN in my watch list. Exposure to gold loans and expensive debenture issues might effect future earnings. I like to wait till 2013 annual report comes out before jumping in. In the mean time, I will keep looking at other companies. UAL is next in my mind. Keep reading till then.

Cheers...