A weekly review of
fundamentals enjoyed by the blue chips
Apr 17 - 23, 2000
Though, the level of interest in textile shares has always been low in
general, some of the companies being export oriented and/or involved in higher value
addition were never ignored. Despite, the fact that a number of companies have small
capital base and low level of free float, some scrips are always in demand.
Nishat Mills is one such company. The shares of the Company are
once again in great demand, as the unit has undertaken a project to expand capacity and
improve quality standards. Greater availability and low prices of cotton and PSF are
expected to improve profit margin of the Company.
Engro Chemical Pakistan
The price volatility in Engro seems to be due to a number of factors.
It is mostly attributed to an effort by Dawood Group to push the share price to higher
level to minimize the losses on sale of its holding, if it at all wishes to sell its
stake. After the election of new Board of Directors of the Company for next three years
the whole purpose of accumulation of shares by the Group has been defeated. Whereas, the
buyers will be waiting for the decline in share price to enter into a good deal. As such
the scrip is not very liquid as most of the shareholders will not like to sell their stake
and many long-term investors are interested in making a good deal.
Adamjee Insurance Company
The recent volatility in the share price seems without any improvement
in fundamental and any upward movement in price is the outcome of efforts of some major
stockholders. Some groups, other than Adamjee Group, control around 40 per cent of the
total number of outstanding shares. It is understood that most of the shares have been
bought under Badla arrangement and arrangements for rollover have also been made. These
groups have also borrowed from financial institutions by pledging these shares any
financial institution should be ready to extend credit against shares of blue chip
companies as they are sitting on tonnes of liquid cash. While there are efforts by these
groups to acquire finances against these shares to get rid of Badla arrangements but the
motive is to make quick buck by creating buying euphoria.
The scrip has always been a favourite of the innovators as well the
speculators. Investors' motive is to get regular dividend as well as make capital gains
and speculators prefer it mainly for the free float and liquid nature. Despite the fact
the Company did not declare any handsome dividend for the year 1999, many investors would
like to add to their holding. Now Dewan Mushtaq Group, after the takeover of Dhan Fibres,
has around 200,000 tonnes of PSF manufacturing capacity at its disposal. This provide the
strength to the Group to maneuver PSF price. Besides, the earnings of Dewan Salman are
expected to improve as it enjoys monopoly in locally produced acrylic
From the early days the scrip has remained in lime light
initially due to the fundamentals and lately due to IPPs controversy. Price volatility in
the recent past was due to active participation by some groups having undue information
advantage regarding the negotiations with the GoP. Though, it is a million dollar question
when there will be a resolution of ongoing controversy, the ground is being prepared
mainly due to active participation by the lenders. If the lenders agree to provide funds
to WAPDA for settling payables to HUBCO as well as for revamping of its transmission and
distribution network there could be an early end to the woes of HUBCO shareholders.
Investors have lost their interest, to a large extent, as they have not received any
dividend for more than two years.
The company will continue to enjoy certain advantages. These include a
larger chunk in fertilizer market, a major stake in FFC-Jordan, a very strong cash flow
and over-flowing liquidity. The scrip has always been a pick of investors and speculators.
However, the fundamentals enjoyed by the Company are not as strong as it used to be in the
past. One may fear a piling up of inventory due to a forecast for decline in sales but the
option of export of surplus urea is also there. FFC-Jordan has not been able to commence
production of DAP type fertilizer and the Company has very little opportunities for
investing surplus cash.
Askari Commercial Bank
Out of all the private sector banks, Askari was considered relatively
stronger as it was sponsored by Army Welfare Trust. The Trust is a major depositor as well
as a major borrower. However, the Bank, after freezing of FCAs, faced some problems as
bulk of its deposits were in dollars. It has not been able to overcome this problem fully.
With the shrinking spread, unless the Bank widen its scope of services, profit margins are
expected to remain under pressure. Consumer banking offers new opportunities but the Bank
does not have the relevant expertise to undertake this activity.