Deshbandhu soars 88pc in two weeks

FE Team | Published: October 21, 2023 22:06:45

BABUL BARMAN
Deshbandhu Polymer has been flying high on the Dhaka Stock Exchange at a time when the overall market has been stagnant.
The stock escalated 88 per cent in just two weeks to close at Tk 42 on Thursday after the company had announced the possibility of a merger with three other business entities. It jumped a whopping 18 per cent in a single session on October 3 though its latest earnings disclosure was not that promising.
It declared only 2.5 per cent cash dividend for FY23, half what was disbursed for the year before.
Stock market analysts suspect price manipulation behind the unusual hike, as has been seen in price appreciations of other small-cap stocks in the bearish market.
The company's earnings and dividend payout remained low, while the merger plan was at the initial stage.
Many low-profile companies' stocks have been significantly beating their industry peers in recent months, which are in regular business operation, posting profits and giving dividends to their shareholders.
"The price hike is unusual considering the current status of the company," said Prof Abu Ahmed, former chairman of the economics department of the University of Dhaka.
A group of people might be cashing in on the merger issue, spreading rumors that the stock would go up further, he said.
Some investors chase stocks when they fly on the bourses to make capital gains overnight, a tendency that manipulators take advantage of by selling off overvalued stocks to general investors, said Prof Ahmed.
"Low-performing stocks are still favourites among a section of investors even though these securities are believed to be manipulated. If these stocks face corrections, general investors will be the ultimate losers, which will dent their confidence."
Investors need to be cautious and invest after assessing the potential of companies.
At the end of Thursday's trading, the price-to-earnings (PE) ratio of the company stood at 71, much higher than the overall market PE of around 15. That indicates Deshbandhu Polymer is already overpriced.
A high PE ratio poses a greater risk to investors, especially the marginal ones.
The PE ratio is an important indicator to better understand what happens in the market after a large gain or decline. It is also one of the best gauges to know how expensive or cheap the stock is at a certain period.
MERGER PLAN
Three non-listed entities of Deshbandhu Group -- Deshbandhu Sugar Mills, Deshbandhu Food & Beverage, and Deshbandhu Packaging -- are going to merge with publicly traded Deshbandhu Polymer.
Golam Rahman, managing director of Deshbandhu Group, said the merger plan was intended to strengthen the listed firm.
The board has already authorized the managing director to make all sorts of correspondence and take all necessary steps, including appointing an auditor from the Bangladesh Securities and Exchange Commission (BSEC) panel auditors.
It also gave responsibility to the additional managing director & group CFO of Deshbandhu Group to carry out a detailed feasibility study and prepare a draft scheme.
FINANCIAL PERFORMANCE
The PP woven bag manufacturer made a profit of Tk 36.21 million for FY23, 26 per cent higher than the previous year.
The company's earnings per share stood at Tk 0.59, up from Tk 0.47 a year ago.
It has also reported net asset value per share of Tk 19.20 and net operating cash flow per share of Tk 0.91 for the year ended in June this year, as against Tk 18.93 (restated) and Tk 0.74 (restated) respectively for the year ended in June 2022.
Deshbandhu Polymer is a manufacturer of PP woven bags in Bangladesh, suitable for packing all types of food grain, wheat flour, chemicals, cattle feed, fish feed, sugar, rice, and fertilizer.
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