September quarter sees blowout corporate earnings

• Exceptional gains in a few entities drive total earnings to Rs.231bn
• Other entities see notable gains from softer inflation, lower rates & recovering economy
• Bank earnings get a lift from sharply lower provisions as borrowers regain debt serviceability

The listed companies reported some robust top and bottom-lines in the three months through September 2024 supported by cooler prices and lower interest rates which helped them to bring back more customers and stretch their margins, Capital Trust Research said.

In a comprehensive report which has parsed through earnings reported by 270 companies which opened their books for the September 2024, the research house tallied the total earnings at a whopping Rs.231.17 billion, which is an increase of a robust 63.3 percent from the same period in 2023.

This translated to an even higher 125.9 percent increase from the June quarter earnings in 2024.

Capital Trust Research identified this jump in earnings to some exceptional gains reported by Browns Investments PLC, LOLC Holdings PLC and Brown & Company PLC associated with a series of acquisitions of tea estate companies in Africa and China in July this year.

In July 2024, Browns Investments acquired controlling stakes in four tea estate companies; two in Kenya, one in Rwanda and another in China for a total purchase consideration of Rs.18.0 billion, giving rise to a massive Rs.50.80 billion gain on bargain purchase.

This helped Browns Investments to report an after tax profit of Rs.48.07 billion for the quarter, from a profit of Rs.7.11 billion in the same period in 2023.

There were similar gains associated with the same transaction in the other two entities with lesser scale making possible some blowout profits in them. The same three companies also featured as the top three entities in earnings in the quarter followed by Commercial Bank of Ceylon PLC and Ceylon Tobacco Company PLC.
Excluding these exponential earnings in the three entities, which could be considered as outliers, the rest of the listed companies were seen still doing better than both a year earlier levels as well as a quarter ago.
“Barring the exceptional gains and a slump in profits in a couple of entities (which had a notable impact on the September 2024 quarter earnings), other entities broadly saw their earnings being supported by higher top-line and expanding margins, the latter which was possible from the softer inflation and appreciation in the rupee”, the research house said.

“Meanwhile the decline in finance costs made possible from the lower borrowing costs also helped the corporate bottom-lines,” they added.

Meanwhile, the banking sector earnings have well been supported by the sharply lower provisions they made against possible loan losses as the banks grew more confident about their borrowers’ ability to service their loans than a year ago.

The banking sector earnings also saw they are accelerating their lending in the September quarter on the back of lower interest rates and rising economic activities.

Meanwhile, the sectoral classification of total earnings compiled by Capital Trust Research showed that the banking sector which typically leads the earnings has fallen into the fourth while food, beverage and tobacco had emerged as the top contributor with total earnings by the sector at Rs.79.56 billion.

This was again due to Browns Investments while the other entities representing tobacco such as Ceylon Tobacco Company PLC, liquor and soft-liquor producing companies and plantations companies have also done well.
Diversified finance and Capital goods sectors followed as the second and the third largest earnings contributors with total sectoral earnings of Rs.46.05 billion and Rs.42.49 billion.

The banking sector earnings came in at Rs.37.73 billion.