The dramatic turnaround of the Colombo bourse in the first half of this year, particularly after the war ended, has enabled Ceylon Guardian Investment Trust PLC and its subsidiaries, Ceylon Investment PLC and Rubber Investment Trust Limited to post a six-month after-tax profit of Rs.852 million, up 25% from a year earlier.

"The Colombo bourse is likely to see foreign fund inflows in the medium term and we envisage the next bull phase of the market to be driven by foreign buying," Guardian Fund Management Ltd., the managers of Ceylon Guyardian said.

The Ceylon Guardian group, controlled by Carson Cumberbatch & Company, is the biggest investment company quoted on the Colombo Stock Exchange (CSE).

Guardian Fund Management Limited, investment managers for Ceylon Guardian, has told shareholders in an interim statement that the company posted an after-tax profit of Rs.798 million during the six months under review with Rs.349 million from a share re-purchase by its subsidiary, Rubber Investment Trust Limited, being the major contributor.

Currently, Ceylon Guardian has made an offer to re-purchase 15% of its issued shares from its shareholders at an attractive price of Rs.368 per share. This is in line with the underlying net asset value of the share base as at June 30, 2009.

The Total re-purchase value of the 15% of the company for which the offer has been made is Rs.1.1 billion.

The managers said that in the first quarter of the current financial year, activity on the Colombo bourse declined in line with developments elsewhere in global equity markets, with most investors shunning the market on fears of the economic crisis faced by the US and Europe spreading to Asian countries.

The result was that the All Share Price Index in Colombo was in negative territory during this period but with the war ending, the CSE shot up 106.1% to its highest recorded levels to be rated the world’s second best performing market.

With favourable economic factors including the IMF standby facility and improved private remittances, stability and the economic front had been achieved with interest rates tapering down and low inflation.

As conditions improved, the Guardian group had built up positions in selected sectors including banking and finance, retail, food and beverage and the diversified sectors identified as the future growth sectors.

"A bottom up approach was applied when selecting the stocks taking into account financials, industry presence and management," the manager said. "The company opted for major stakes when investing for the long term portfolio of the investment company."

Guardian’s trading portfolio structured to add value to shareholder returns in the short-term, although dormant during the first quarter of the year, reversed its position in the second quarter and aggressively bought stocks in the banking and tourism sectors, the managers said.

"The Guardian group now stands at a fresh phase of growth in its history, where having realized profits for its shareholders and returned a part of their investment at a capital gain, it has also re-invested for the economic turnaround and the peace dividend in the country," the manager said.

"Sri Lanka presents a unique opportunity for investors who would benefit from the upside created by the dramatic turnaround in the country’s fortunes; and the market is likely to pose opportunity for investors such as us with dual roles by way of enhancing growth in the long term and adding quick value in the short term."

They also revealed that many Greenfield ventures in the pre-IPO stage had been explored and Guardian would look forward to investing in projects not available on the conventional markets provided the expected returns and risk profiles matched internal benchmarks.

"We will continue the process of evaluating such projects as we like to capture opportunities for investment at the infant stage, thus enabling to maximize profits and add value to management," the managers said.

The total net asset value of the Guardian group portfolio stood at Rs.10.1 billion as at September 30, 2009, up from Rs.6.1 billion on March 31, 2009 – an appreciation of 65% against an appreciation of 79.4% of the All Share Price Index for the same period.

The consolidated profit after-tax for the half year under review was Rs.852 million including an unrealized appreciation of Rs.356 million.

"Shareholder wealth gained 223% during the half year with a share price appreciation of 212% and dividend of Rs.11.50 per share," the managers said.

Looking forward, they said they expect the market to record new highs with improved earnings and greater investments by corporates. They expected the market to be re-rated to an average PE level of 14 to 15 seen in the past.

"Also the drop in interest rates is likely to fuel funds to the equity market from bank deposits, treasury bills etc."

They said they were positive on the country’s future and will look to accumulate and build the core portfolio with above average ratings on sectors of choice.

With the global economies slowly recovering and coming out of recession, Guardian’s managers expect more foreign portfolio investment flows to Asia and to Sri Lanka given greater stability in the region. Also, a shift from fixed income investments to equities by foreign funds could be anticipated.

"As such we are confident that our aggressive strategy of stock accumulation is likely to pay off in the long term. With our net worth now crossing the Rs.10 billion mark the Guardian group now commands a resource base that can be used to invest for the next phase of shareholder growth, branching out into both listed equities and stakes in Greenfield venture capital projects," the managers said.

Ceylon Guardian Investment Trust has a stated capital of Rs.672.8 million with capital reserves at nearly Rs.1.2 billion and revenue reserves at nearly Rs.5.2 billion in its books as September 30, 2009.

Carson Cumberbatch & Company with 67.15% is the controlling shareholder of Guardian followed by Thurston Investments (6.64%) and Mr. M. Radhakrishnan (2.11%).