The value dip presents an opportunity to buy – what’s the worst case?
The combination of panic and forced selling seen in equities since the market hit its peak in January has led to steep discounts in some counters.
While part of the value discount is warranted given the macro risks feeding to equities, we believe that some of the temporary price dislocations are not fully warranted.
In this report, we focus on 14 stocks and stress test our models to see the fundamental ‘worth’ of these companies in an extreme scenario, and arrive at a fundamental floor value.
With interest rates on the rise, coupled with heightened macro uncertainty, we believe investors will take a risk off approach to investing in the near term. However, it is our view that buying into oversold, deep discounted stocks at this point, can offer investors attractive returns in the near to medium term in the event economic stability is achieved through an IMF program.
In addition, from a technical angle, the fact that most of these counters are reaching their long term trend support levels, also provides an attractive entry point to these counters.
The fundamental floor value is not the target price. Instead, it tells us the value of the stock if the worst case scenario were to materialise.
If the current market price is either within the fundamental floor value range or lower, this indicates that the stock is clearly oversold and indicates a long term BUY.
Our focus is on cash flow based models (DCF or DDM) using an ERP of 20% to account for the high market risk premium, and a range of 15-20.0% for the risk free rate.
ASPI likely to show further downside amidst margin selling pressure; we expect support in the 6,200-6,800 region
Based on multiple key price action points since 2011 and key Fibonacci retracement levels; ASPI support zone 6200 to 7300 can be considered as a pivotal region to establish support and market direction. Sideway consolidation with improving volume momentum will be important to strengthen the overall support. Alternatively, major volume breakout below the current support zone can push the index further and test lower support levels.
CSE market capitalization has fallen sharply on heightened economic and political uncertainty
CSE market capitalization has fallen 40.0%+ since hitting its peak on 19th January bringing market capitalization close to end 2020 levels.
The CSE’s ability to weather the storm is reflected by the balance sheet strength of listed entities
Corporate balance sheet strength (excluding banking, financial and insurance)
~70% of the companies have liquidity ratios (Current Asset/Current Liabilities) above 1.0; ~33%of the firms have liquidity ratios above 2.0
~74% of the firms have leverage (Debt/Equity) below 100%; ~60% have Debt/Equity ratios below 60%
~66% of the firms have interest coverage ratios (EBITDA/Interest) above 2.0