An Overview
of Lanka Banla Finance Ltd.
LankaBangla Finance Limited (LBFL) a joint
venture financial institution established with multinational collaboration is
in operation since 1997 having license from Bangladesh Bank under Financial
Institutions Act, 1993. With institutional shareholding structure, educated
& motivated human resources, friendly working environment & dynamic
corporate culture has enabled LBFL to be a diversified financial services
providing institution of the country. Technical support provided by Sampath
Bank Limited, Sri Lanka has been working as a catalyst to emerge LBFL as most
innovative financial solution provider strictly in compliance with the rules
& regulations of Bangladesh Bank.
LankaBangla Securities Limited (LBSL) is a subsidiary
of LankaBangla Finance Limited and a leading equity brokerage house in the
country with a diverse clientele of institutions, high net worth individuals,
foreign funds and retail investors. The company commenced stock broking
activities in 1997 and has over time become the largest stock broking company
in the country having developed a strong team of highly skilled and experienced
professionals. LBSL (Formerly known as Vanik Bangladesh Securities Ltd) started
its stock broking business in 1997 trading on the Chittagong Stock Exchange
(CSE) Ltd, while commencing trading on the Dhaka Stock Exchange (DSE) in1998.
The company was renamed LankaBangla Securities with effect from 27 April 2005.
Nature of Business:
The
Company extends brokerage services as its core business. Basically the Company
performs margin loan facilities, research & analysis and provides advisory
Services to the clients.
Vision
To be the nation's most sought after
facilitator in creating, nurturing and maximizing value to the stakeholders,
the society, the environment, and thereby, GROWING TOGETHER.
Mission:
To lead by example through a committed team of
nurtured resources fostering ownership that motivates thriving towards
excellence in knowledge, systems, processes and procedures, thereby empowering
the organization on at every level to deliver the highest quality of product,
customer care, and stakeholder value keeping environmental safety a priority.
Principal products and services:
Lanka Bangla Securities Limited offers various
kinds of services all over the country,
Which includes the followings?
Ø
Brokerage Services
Ø
Trading Facility through NITA (Non Resident Investor’s Taka
Account)
Ø
Internet Trading
Ø
CDBL Services
Ø Research Services
Listing of Lanka Bangla Finance Ltd. in Stock Exchange
Ø
Dhaka Stock
Exchange
Ø
Chittagong
Stock Exchange
|
Basic Information:
|
|||
|
Authorized Capital in BDT* (mn)
|
3000.0
|
|
|
|
Paid-up Capital in BDT* (mn)
|
1894.0
|
52 Week's Range
|
53.5 - 181.9
|
|
Face Value
|
10.0
|
Market Lot
|
500
|
|
Total no. of Securities
|
189408450
|
Business Segment
|
Financial Institutions
|
Financial Performance:
|
Year
|
Basic EPS
|
Basic EPS (restated)
|
Net Asset Value Per Share
|
Restated Net Asset Value Per Share
|
Net Profit After Tax (mn)
|
|||
|
Based on
|
Based on
|
|||||||
|
Continuing operations
|
Including Extra-Ordinary Income
|
Continuing operations
|
Including Extra-Ordinary Income
|
Continuing operations
|
Including Extra-Ordinary Income
|
|||
|
2006
|
2.56
|
n/a
|
n/a
|
n/a
|
10.58
|
n/a
|
71.49
|
n/a
|
|
2007
|
6.01
|
n/a
|
5.47
|
n/a
|
15.57
|
15.52
|
210.47
|
n/a
|
|
2008
|
9.81
|
n/a
|
8.53
|
n/a
|
23.96
|
20.84
|
377.64
|
n/a
|
|
2009
|
16.81
|
n/a
|
14.00
|
n/a
|
47.44
|
39.54
|
744.07
|
n/a
|
|
2010
|
32.00
|
n/a
|
20.65
|
n/a
|
90.18
|
58.18
|
1700.15
|
n/a
|
Dividend Theories
Bird-in-the Hand theory
A theory
developed by Myron J. Gordon & Linter that tells Stockholders prefer
current dividend. It also tells that there is a direct link between Dividend
Policy of the firm and its market value. Fundamental to this proposition is
that Bird-in –the-Hand argument suggests that investors are risk averse &
attach less risk to current as opposite to future dividends or capital gains.
Dividend Irrelevance Theory
A theory put
forth by Metorn H. Millar & Franco Modigliani (M&M) that in a perfect world, the value
of a firm is unaffected by the distribution of dividends and is determined
solely by the earnings power and risk of its assets. Lanka Bangla Finance Ltd. follows
this theory.
|
Table 1(Stock)
|
|||
|
Year
|
% Dividend
|
Stock Price in DSE (TK)
|
Net income(Mn Tk)
|
|
2006
|
0
|
17.5
|
31.43
|
|
2007
|
10
|
25.5
|
126.82
|
|
2008
|
15
|
37.5
|
252.82
|
|
2009
|
20
|
43.5
|
638.82
|
|
2010
|
55
|
48
|
742.39
|
According to available data of Lanka Bangla Finance Ltd. from 2006 to
2010, it is clear that Lanka Bangla Finance Ltd. is following Dividend
irrelevance Theory which is developed by Metorn H. Millar & Franco Modigliani (M&M) said that a company may not declare higher
dividend because of the following reason:
§ Use their profits to grow their business.
- Expanding for the
business.
- To build up a
strong company.
Lanka Bangla Finance Ltd. follows Irrelevance theory from last few years, Lanka Bangla Finance Ltd.
declared Less dividend and retained higher earnings in order to attract those less
risk averse investors who prefer future dividend.
Here some Dividend policies are given below:
Dividend Policies
Constant- Pay-out
ratio
The dividend
policy ratio indicates the percentage of if each amount earned that is
distributed to the owners in the form of cash. It is calculated by Dividend
payout ratio = Cash Dividend per Share / E.P.S. With a constant-payout-ratio dividend policy, the firm established that a
certain percentage of earnings are paid to owners in each dividend period.
The problem with this policy is that if the firm’s earnings drop or if a
loss occurs in a given period, the dividends may be low or even nonexistent
which could adversely affect the firm’s share price.
Regular Dividend Policy
The regular dividend policy is based on the payments of a fixed amount
dividend in each period. This policy provides the owners with generally
positive information, thereby minimizing uncertainty. Often, firms that use
this policy increase the regular dividend once a proven increase in earnings
has occurred. Under this policy, dividends are never decreased.
Low-Regular-And- Extra Dividend Policy
Some firms establish a low-regular-and-extra dividend policy, paying a
low regular dividend supplemented by an additional dividend when earnings are
higher than normal in a given period. By calling the additional dividend an
extra dividend, the firm avoids giving shareholders false hopes. This policy is
especially common among companies that experience cyclical shifts in earnings.
Key Components of Discussion
Net Income:
|
Table 2
|
||
|
Year
|
Net Income(Mn Tk)
|
Growth
|
|
2006
|
31.43
|
42.34
|
|
2007
|
126.82
|
337.61
|
|
2008
|
252.82
|
99.36
|
|
2009
|
638.82
|
152.41
|
|
2010
|
742.39
|
13.95089
|
Table 2: NI and its
growth in the last 5 years
Interpretation:
Growth in net income is even more
important than sales because net income tells the investor how much money is
left over after all of the operating costs are subtracted from sales. From the
above table, we can see that Lanka Bangla Finance Ltd. has earned profit in the
years 2006, 2007, 2008, 2009 and 2010. In 2010, the growth of Lanka Bangla
Finace was significantly affected because of Stock Market Recession.
Figure 01: Growth in last 5
years
Earnings per Share
|
Table 03
|
||
|
Year
|
EPS
|
Growth
|
|
2006
|
5.8
|
42.34
|
|
2007
|
11.48
|
337.61
|
|
2008
|
16.52
|
99.36
|
|
2009
|
15.95
|
152.41
|
|
2010
|
13.5
|
13.95089
|
An Earnings
per Share (EPS) is the amount of money earned by a company expressed in per
share. Following table provides the information of EPS of Lanka Bangla Finance
Ltd in different years. It shows that from 2006 to 2009, EPS is increasing but
the rate of increasing is not same. It is fluctuating in this time period. EPS
in 2008 and 2009 is same. But the, growth rate for each year is fluctuated.
Table 3: EPS and its growth in the last 5 years
Interpretation:
From the above chart, we can see
that the Earning per share is increasing from year 2006to 2009 but in 2010 the
earning per share was decrease by Tk 13.5.
Figure 2: EPS for
the last 5 years
Information
Regarding Dividend, Lanka Bangla Finance
a. Dividend payout
ratio
Dividend payout ratio = Cash Dividend per Share / E.P.S.
Dividend payout ratio says the % of EPS that is paid as dividend.
It helps us to determine whether it is following dividend relevance theory or
dividend irrelevance theory.
|
Table 4
|
|||
|
Year
|
Cash Dividend Per Year (%)
|
EPS
|
Dividend Pay Out Ratio(4)=(2)/(3)
|
|
2006
|
10
|
5.8
|
172.4137931%
|
|
2007
|
15
|
11.48
|
130.6620209%
|
|
2008
|
15
|
16.52
|
90.799031485%
|
|
2009
|
15
|
15.95
|
94.04388715%
|
|
2010
|
0
|
13.5
|
0
|
Table 4: Dividend
Payout and retention ratio for last 5 years
Interpretation:
From the above table, we can see
that the dividend payout ratio is decreasing each year. This is due to the
increase in Cash Dividend is not as much as the increase in EPS. In 2010, Lanka
Bangla Finance was not declaring cash dividend. So the dividend payout ratio
was zero.
b.
Stock Dividend
After
analyzing Stock Dividend of the last 5 years, we found out that Lanka Bangla
Finace Ltd. had declared Stock Dividend to its shareholders. A stock dividend
is paid when a company needs to preserve funds to finance rapid growth.
|
Table 5
|
||
|
Year
|
Stock Dividend Per Year
|
Stock Price
|
|
2006
|
0
|
17.5
|
|
2007
|
10
|
25.5
|
|
2008
|
15
|
37.5
|
|
2009
|
20
|
45.5
|
|
2010
|
55
|
57.5
|
Table 5: Percentage
of Dividend Payments
Interpretation:
From the
above table, we could see that the rates at which Lanka Bangla is offering
Stock Dividend to its shareholders is quite attractive. This activity can be
attributed to the cause that Lanka Bangla is trying to attract more investors
to invest in Lanka Bangla. For this reason, they are trying to give a positive
signal to the stock market through high percentage of dividend payments. We can
say that Lanka Bangla has been able to attract more investors just by looking
at its yearly increase in stock price.
c.
Relation between Dividend Rate and Market Price of Stock
The Chart
given below depicts that market price was low when rate of dividend was lower
in 2006. Then the increasing rates of dividend results gradually increase of
market price. Highest the market price growth rate occur from 2007 to 2010.
Here we can comment according to dividend irrelevance theory as it says
dividend should be paid whatever is left after meeting all available investment
decision. In last Four years firm follow dividend irrelevance theory and was
able to increase shareholders value.
|
Table 6 (Stock)
|
|||
|
Year
|
% Dividend
|
Stock Price in DSE (TK)
|
Net income(Mn Tk)
|
|
2006
|
0
|
17.5
|
31.43
|
|
2007
|
10
|
25.5
|
126.82
|
|
2008
|
15
|
37.5
|
252.82
|
|
2009
|
20
|
43.5
|
638.82
|
|
2010
|
55
|
48
|
742.39
|
Table
6: % Dividend and Stock Price
Interpretation:
This table
reveals that the % of dividend was increased in every year from 2006-2010. In
2006, the company declared no dividend. In 2007, it declared 10% dividend.
After that , they give high dividend to
its shareholders. In 2010, they declared 55% dividend, which attract the
investors to invest in the company. The net income of the company also increased
year by year. In 2010, the stock price of the company was TK. 48.
Figure 3:
Relationship between Dividend and Share Price
d.
A comparison of year end P/E ratio for 5 years
|
Table 7: P/E Ratio
|
|||
|
Year
|
Year End P/E
|
% Dividend
|
% Dividend Yield
|
|
2006
|
7.73
|
10
|
0.571428571
|
|
2007
|
16.66
|
15
|
0.588235294
|
|
2008
|
23.05
|
15
|
0.4
|
|
2009
|
22.41
|
15
|
0.32967033
|
|
2010
|
24.11
|
0
|
0
|
Table 7: P/E ratio for 5 year
Interpretation:
It is seen that year end P/E
ratio has been increasing in 5 years which is a Bad sign for the future growth
and prospect of the company, which will discourage the investors for investing
in the company.
Findings:
The findings
of the study are as follows….
During 2006 to 2007 Lanka Bangla Finance
Limited (LBSL) paid on an average 22.11%
of their net income as dividend . Where in 2008 to 2009 Lanka Bangla Finance
Limited (LBSL) paid on an average 22.28% of their net income as dividend. In 2010
Lanka Bangla Securities Limited (LBSL) 7% stock dividend In that year firm finance this extra
dividend amount from their retained earnings.According thes table we see that
Lankabangla give stock dividend last year and not paid cash dividend .because
they want to rise the capital.
Clientele effect means the tendency of a firm to attract a set of
investors who like its dividend policy .If
the large number of investors of the particular company prefer high
dividend then company must pay more dividends to the investors. On the other hand, if large number of investors of
the particular company do not prefer high amount of dividend then
company must retain most of their earnings inside the organization. In case of lankabangla the investor are risk
taker and they want to invest in long term benefit.
The company believes that the investors are rational and they like irrelevance theory.
In first
four years the company pays cash and stock dividend. But in last year they
declare only stock dividend.
The analysis
shows that dividend was not stable over time.
In the year
2008 and 2009 the firm used the residual dividend model to set payout ratio at
a level that will permit the firm to meet its Financing requirements with
retained earnings.
It is not
following any particular dividend policy. As it is paying varying amount of
increasing dividend rate.
Reference:
Lanka Bangla Finance Ltd. Website Annual Report 2010 of Lanka
Bangla Finance Ltd. Principles of Managerial Finance,8th Edition by L J
Gitman.
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