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THE KASB REVIEW

  1. The KASB review
  2. Finex week

An exclusive weekly Stock Market report for PAGE by Khadim Ali Shah Bukhari & Co.

Updated on Sep 12, 1999

Stock Market

True to expectations the Karachi Stock Exchange 100 index continued to remain adrift for this week running as well. With the ominous absence of real investor interest the KSE 100 slipped by 0.88% over the week to close at 1156.18.

During the week Hubco witnessed renewed investor interest largely on the back of domestic institutions. Certain rumors pertaining to Hub Power Co. circulating in the market also lead to an increased turnover.

Shell announced its FY 99 earnings results, which were greatly welcomed by the market leading to an increased rally during the week, which however subsided during the course of the week.

For the coming week we remain with our earlier stance of entering the market at lower levels as due to excess liquidity the KSE 100 is going to remain range bound, without any bout of out-performance expected anywhere in the near future.

 

Sector Review

 

Shell Pakistan FY 99 Result Preview

Shell announced its results for the year ended June 30. Overall performance has improved considerably y-o-y, with a 49% jump in earnings. A brief summary follows:

Starting with net sales, revenues were down in line with lower average prices (net of surcharges), as government levies rose to 54% of gross sales, up from 42% a year earlier. As cost of product also declined in step with revenues, gross margins rose 400 bps, with gross profits also jumping 32%. Operating expenses were higher, up 29% y-o-y-we suspect this is due to aggressive marketing, details are not available as yet. The result announcement seems to vindicate earlier suggestions that Shell has slowed down its capex plans in Pakistan. We draw attention to lower financial charges, which dropped 63% to only PKR34 mn. This clearly points to a more healthy cash position, which we believe is a result of lower capital expenditure. Also in line with this theory is the figure for net other income, which also rose 24% y-o-y, again pointing to an easier liquidity position during the year.

We have been extremely bullish on the Oil Marketing Sector in Pakistan, and believe that our view is being vindicated by these results-PSO's announcement later should also show healthy growth. Despite strong fundamentals, valuations are still attractive, Shell trades at only 7.9x historical earnings while yielding over 6% (dividends)—both measures at discount to the market and regional peers. With the government desperate to protect its revenues from surcharge on POL products, we suspect prices of petroleum products will start rising fairly soon. This augurs well for earnings growth. The argument for a quasi currency hedge existing for these oil marketing companies is still intact, more so when international petroleum prices are firm. We remain extremely bullish on the sector-OVERWEIGHT. BUY Shell, PSO. 

PKR mn 1998 1999 % Chg
y-o-y
Sales 25,134 22,855 9
CGS 22,930 19,935 -13
Gross Profit 2,204 2,921 32
GM 8.8 12.8  
Op. Expenses 1,275 1,649 29
% of Sales 5.1 7.2  
Operating 929 1,271 37
OM 3.7 5.6  
Other income 84 104 24
% of Op. Profit 9 8  
EBIT 1,014 1,376 36
Fin. Charges 92 34 -63
% of Sales 0.4 0.2  
EBT 922 1,341 46
Tax 330 460  
Effective Rate 35.8 34.3  
EAT 592 881 49
Net Margin 2.4 3.9  
EPS 16.9 25.1  
P/E 11.8 7.9  
DPS 8.5 12.5  
Payout 50 50