Intrinsic Value per Share (DCF-based): Rs. 40.00
Current Market Price (CMP): Rs. 80.00
⚠️ Overvaluation: CMP is 100% above intrinsic value!
📉 Key Concerns and Valuation Risks
🔴 Overpriced Relative to Intrinsic Value
- Even under an optimistic growth scenario (10% FCF growth), the stock’s intrinsic value only reaches Rs. 57.
- The market is pricing in unrealistic growth despite fundamentals not supporting such a premium.
📊 Mixed Fundamentals – Proceed with Caution
🟡 Moderate Profitability
- Return on Assets (ROA): 7.49% average over 10 years
- Return on Equity (ROE): 17% average – decent but inconsistent
- Owner’s earnings CAGR over the last 10 years is just 1%, despite the reported EPS CAGR of 7%, pointing to weak shareholder value creation.
🟡 NAVPS Growth Not Beating Inflation
- NAVPS (2016–2025): From Rs. 12.99 to Rs. 24.35
- 10-Year Compounded NAVPS Growth: 6.49%
- With Reinvested Dividends: 11.61% – still below Sri Lanka's historical inflation rate
🔴 Inconsistent Cash Flow Performance
Year Free Cash Flow (Rs. Mn)
2016 1,328 ✅ Positive
2018 -1,794 ❌ Negative
2019 -1,651 ❌ Negative
2023 -443 ❌ Negative
2024 7,728 ✅ Recovery in progress
Observation: Inconsistent FCF with multiple years of negative outflows, high CapEx intensity, and erratic reinvestment patterns.
💵 Dividend & NAV Return Summary
- Total Dividends over 10 Years: Rs. 14.61
- Total Benefit (NAVPS + Dividends): Rs. 38.96
- CAGR (Total Benefit): 6.49%
- CAGR (If Dividends Reinvested): 11.61%
⚖️ Balanced Perspective
While the company has demonstrated resilience in earnings and recovery in free cash flow in recent years, its overall growth is modest when compared to Sri Lanka’s inflation and government bond rates.
- ✅ Positive Signs: • 2024 shows a significant FCF rebound (Rs. 7,728 Mn) •
- ROE has improved to 23% in TTM 2025 • Earnings Per Share (EPS) and Owner’s Earnings have steadily risen since 2022
⚖️ DCF-Based Valuation Breakdown
- Base Free Cash Flow: Mixed with several negative years
- Discount Rate: 10% (appropriate for SL equity risk)
- Terminal Growth Rate: 6%
- Intrinsic Value Range: Rs. 40 (realistic), Rs. 57 (optimistic)
🧠 Final Verdict: AVOID / TAKE PROFITS
Despite average profitability and some dividend income, the current market price overstates the company's long-term value potential. Fundamentals and real owner returns don’t justify the premium.
🚨 Action Plan
🔻 Avoid New Positions – Current price assumes too much growth not supported by reality
📤 Trim or Exit – Consider profit-taking while the market overvalues the stock
🧮 Track FCF Consistency – True growth needs stable, positive free cash flow
📉 Watch Inflation Impact – Real return is below inflation without rapid future change
🔎 Key Metrics to Monitor
- Owner's earnings stability (not just reported EPS)
- FCF consistency and capital reinvestment strategy
- Real return vs. inflation
- Sustainable ROE above 20% without aggressive leverage
🧾 Conclusion
This stock may look appealing on the surface due to historical profitability and dividend history. However, its intrinsic value is half of the current market price. Inconsistent free cash flow, modest NAVPS growth, and low owner return CAGR make this a classic case of overvaluation. Tread carefully – the price tag doesn't reflect reality.
Notes: DPS, EPS, and NAVPS are adjusted to the stock split in 2021/22
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Disclaimer
The user kalindu holds no position in COSE:CCS.N0000. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.