Financial Times

John Keells Holdings seen growing through acquisitions
John Keells Holdings, which stock brokers have described as being in a buying mood, is likely to seek further acquisitions to boost profits in the years ahead, Asia Securities (Pvt) Ltd said.

"Among JKH's more likely target sectors for acquisitions are financial services, food and beverages and hotels," it said in a research report. This is because organic growth is proving to be increasingly difficult within some of these sectors.

Asia Securities also said it anticipates JKH will consider new investments in high growth sectors such as power, health care, telecommunications, education and infrastructure, in which JKH has relatively modest or no exposure.

It said that although JKH trades at premium valuations of 13.9 times for FY05, even higher premiums are justified in view of the share's "unrivalled liquidity, sustainable earnings growth potential, growing focus on ROCE and total shareholder returns, diversified exposure to the country's key growth sectors and strategic buying interest."

Return on Equity and Return on Capital Employed, before the group's beverage subsidiary's VRS, were 16.1 percent and 16.3 percent in FY 2003/04 compared to the 14.3 percent and 14.5 percent of the previous year. The conglomerate has traditionally been more comfortable with the takeover rather than the greenfield route, the brokers said.

JKH's latest acquisition was a 50 percent stake in specialist lessor Mercantile Leasing. It paid Rs 35 per share or a total of Rs 359 million for the controlling stake and a mandatory offer for the balance shares is pending.

JKH has been in the limelight recently for its aggressive expansion by buying Asian Hotels Corp., which owns prime property and top hotels in the city. The company, which has reported a strong first quarter 2004/2005 performance, expects to start building a new 30-storey luxury apartment complex at its Crescat property next January. It has also boldly moved out of tea and rubber plantations by selling subsidiaries recently.

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