By SHABBIR H. KAZMI
May 08 - 21, 2000

A weekly review of fundamentals enjoyed by the blue chips

While many Pakistani investors may be concerned with overall decline in the prices of stocks, the same is being witnessed in other leading equities markets. However, this decline is substantial due to technical nature rather than any change in the fundamentals. During the last three weeks excessive speculations in some scrips had been lead by Badla/margin financing. The speculators had hoped that financial institutions would come in for buying before the budget which did not happen. As a result the speculators were forced to liquidate their positions which put sharp down trend in the market. At the same time retail investors have remained on the side line watching to see what happens in the budget before making any investment decision. While foreign investors were too busy with down turn in big markets to focus on small market like Pakistan.

Pakistan Telecom. Company

The largest capitalized and more liquid Pakistan Telecommunication Company (PTCL) has seen weakness this week. We think that long-term investors could use this technical weakness to build position in this fundamentally sold company which is undergoing quite a bit of internal restructuring. PTCL is likely to continue rebalancing domestic tariff in order to reduce dependence on foreign incoming calls. PTCL is making good progress in implementing its cellular phone project expected to be operational early next year. The Company has already entered into an agreement with Nortal of Canada to laydown basic infrastructure for the proposed network. Progress is also visible on the internal side whereby Company's ISP business has been separated into an independent division to provide greater focus for this fast growing business. The PTCL's ISP has been reportedly increased subscribers base by 25,000 in the last four months — improving total subscribers to 50,000. It has also reduced tariff in order to accumulate subscribers quantum. Putting all these elements together, stock analysts feel that PTCL should be able to show 20 per cent earnings growth from the year 2001 onwards after adjusting for the imposition of tax this year.

Worldcall

Interestingly small cap stock provide opportunity to investors in particularly attractive telecommunication sector. This company has built up a credible base of pay-phones network and is planning to position itself as a bigger player in this industry over the next three to four years when PTCL monopoly ends. They are also planning to go into ISP business and from a long-term prospective can be looked at as conversion play of telecom broad based internet and possibly data service provider.

Fauji Fertilizer

Despite announcement of 40 per cent dividend for the year ending December 31, 1999 and another 20 per cent interim dividend for the current year the Company failed to rise investors' interest as investors made handsome profit in the past. Analysts were more keen to know about the status of plant operations of FFC-Jordan which has been causing cash crunch rather than commenting on the performance of the Company.

Sui Southern Gas

Since April 19, prices of both the gas marketing companies have also come down significantly. While the share price of Sui Southern came down by nearly 15 per cent, Sui Northern declined by almost 27 per cent. Analysts feel that once the market has settled and found a base, both the companies would offer excellent capital gains opportunities to investors. Some analysts believe that Sui Southern share is still trading at a 45 per cent discount and Sui Northern share is selling at 50 percent discount to free cashflow based fair values. The recent buying euphoria was based on news of privatization of Sui Southern. With no concrete development on this front investors preferred to off-load their holdings. Regulatory work for transferring the company to the private sector is still in initial stages.

Pakistan State Oil Company

Share of the Company after touching a four month low and closed at Rs 196.5 on the last day of trading this week. Some analysts are bullish about the oil marketing companies on the basis that the GoP may deregularize furnace oil business in 2000-2001 budget. Some analysts interpret this in a different manner. They believe that unless furnace oil prices come down drastically, cashflow of both WAPDA and KESC would not be improved. To pursue privatization of power generation company improvement in their margins is a must which cannot be achieved without cutting down furnace oil price. However, profit of oil marketing is not affected by any movement in the prices of products as it is linked with operating assets.

Movement at a glance
Scrip	High	Low	Turnover (Share Mn)	Closing Price
PTC	28.65	27.75	359.44	27.75
World Call Phone	20.50	18.40	1.60	18.4
Fauji Fertilizer	55.25	54.00	19.75	54.10
Sui Southern Gas	18.40	16.70	10.03	16.70
Pakistan State Oil	205.95	193.05	96.88	193.05