CSE Stock Screening & Candidate List Creation

Part 1: Finding the Right Tools for the Job

To apply your checklist, you need data. Manually gathering financial data for all 270+ companies on the CSE would be incredibly time-consuming. This is where stock screeners come in.

A stock screener is a software tool that filters stocks based on criteria you define. Given your IT background, you can think of it as running a SELECT query on a database of companies, where your checklist criteria form the WHERE clause.

Most good stockbrokers in Sri Lanka provide their clients with powerful research portals that include screeners. A prime example is the AnalytiCAL platform from Capital Alliance (CAL).

As you can see, these portals are designed to make the screening process efficient. They provide the data points you need for your quantitative checks in one place.

While you'll likely use a tool like this once you open a brokerage account, for today's exercise, we'll use a publicly available tool to practice the screening process.

Part 2: Key Ratios for Your First-Pass Screen

Before we start filtering, let's quickly refresh our memory on two of the most important ratios for an initial screen: the P/E Ratio (for valuation) and Return on Equity (ROE) (for quality and profitability).

The following video from CSE Reports Hub provides excellent, locally-relevant explanations in Sinhala.

These two ratios provide a quick snapshot:

• P/E Ratio: Is the company priced reasonably compared to its peers?
• ROE: Is this a high-quality business that is efficient at generating profits?

A good initial screen often involves finding companies that are both high-quality (high ROE) and reasonably priced (low/fair P/E).

Part 3: Applying Your Checklist - A Practical Walkthrough

Now, let's start filtering. We will use a publicly available list of CSE stocks to perform a multi-step screening process.

Let's use a sample checklist to demonstrate the process.

Sample Quantitative Checklist:

1. Size: Market Cap > LKR 100 billion (focus on large, established companies).
2. Valuation (Non-Financials): P/E Ratio < 15.
3. Valuation (Financials - Banks, Insurance): P/B Ratio < 1.5.
4. Profitability: ROE > 15% (This data isn't in the table, so this becomes a "check later" item).
5. Income: Dividend Yield > 2%.

Step 1: Filter by Size (Market Cap > LKR 100b)

The Simply Wall St table is already sorted by market cap. We can simply list the companies that meet our criteria:
John Keells Holdings (JKH), Commercial Bank (COMB), Ceylon Tobacco (CTC), Dialog Axiata (DIAL), LOLC Holdings (LOLC), Distilleries Company (DIST), Hatton National Bank (HNB), Melstacorp (MELS), Cargills (CARG), Sampath Bank (SAMP), Hayleys (HAYL), LOLC Finance (LOFC), Sri Lanka Telecom (SLTL), Lion Brewery (LION), Carson Cumberbatch (CARS), C T Holdings (CTHR), Vallibel One (VONE), Nations Trust Bank (NTB), Ceylon Cold Stores (CCS), Hemas Holdings (HHL).

We've already narrowed the list from over 270 companies to just 20!

Step 2: Filter by Valuation and Yield

Now, let's go through our list of 20 and apply the P/E, P/B, and Dividend Yield filters.

A crucial point: The 'Valuation' column in the Simply Wall St table shows the P/B ratio for financial companies and the P/E ratio for most others. You must look at the 'Industry' column to know which ratio you are seeing.

Let's evaluate a few:

This iterative process quickly eliminates companies that don't meet our criteria and highlights those that do. The "Yes" candidates form our initial list for deeper analysis.

Action Item: Create Your Candidate List

Now it's your turn. Use the personal checklist you created in the last lesson. If you haven't finalised one, you can use the sample criteria from Part 3.

1. Go to the Simply Wall St resource (LINK).
2. Apply your Market Cap filter. Start with the largest companies and work your way down.
3. Apply your Valuation filters. For each company that passes the size filter, check its P/E or P/B ratio against your criteria.
4. Apply any other filters for which data is available in the table (e.g., Dividend Yield).
5. Compile a list of 5-10 companies that pass this initial screen. This is your candidate list.

You can use a simple spreadsheet to track your findings, similar to the one shown below. Log the companies that pass your screen and make a note of why.

Conclusion

Well done! You have successfully bridged the gap from theory to practice. You've taken your abstract checklist and used it as a practical filter to navigate the Colombo Stock Exchange, transforming a long list of companies into a focused group of potential investments.

Key Takeaways:

• Stock screeners are essential tools that act like database queries to filter companies based on your investment criteria.
• Professional brokers in Sri Lanka offer powerful research portals (like CAL's AnalytiCAL) for this purpose.
• Screening is an iterative process: you start with broad filters (like company size) and progressively apply more specific ones (like valuation ratios).
• The output of screening is not a "buy list" but a candidate list of companies that deserve more in-depth research.

Preview of the Next Lesson:

Your candidate list is ready. Now what? The next step is to move from screening to deep analysis. In our next lesson, you will learn how to perform a comprehensive analysis (financial, business, and valuation) on a selected CSE-listed company. You will pick one company from the list you just created and begin the process of building a complete investment thesis.