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A weekly review of fundamentals enjoyed by the blue chips

By SHABBIR H. KAZMI
Updated Jul 17, 2000

The market remained range bound throughout last week as investor interest remained subdued. The KSE-100 index gain was supported by HUBCO, PSO, Engro, Fauji Fertilizer and Ibrahim Fibres. While some analysts believe that the lack of interest in equities market is expected to linger on, other expect major buying in shares belonging to fertilizer sector because the increase in gas price is lower than expectations. They say one should not be concerned with lower off-take during Jan-June period — which is always low as compared to off-take in the second half of the year. Hardly any interest was witnessed in textile sector. Earnings of most of the export oriented textile units will be reduced due to withdrawal of export refinancing facility on less than 30 counts of yarn and un-bleached fabrics. Most of the textile export units are involved in the export of low value-added products. However, any positive outcome of GoP-HUBCO meeting, announcement of tariff rationalization by PTCL and favourable development on the IMF's financing package will help in restoring investors' interest in the capital market.

HUBCO

Despite ongoing legal battle with the GoP investors' interest in the scrip has not been affected. However, the speculators were able to make a fortune which was also responsible for the recent fiasco at equities market. HUBCO's step of invoking the sovereign guarantees gave a new twist to the ongoing tussle with WAPDA. However, speculative interest was strong on the back of reports hinting at a meeting between the Company and the GoP. During the week HUBCO was allowed to make a payment to its lenders which led to improvement in market sentiment. The Company has also filed two review petitions in the Supreme Court. However, share price performance is dependent on the outcome of the expected meeting with the GoP in which the counter offer will be discussed.

PAKISTAN STATE OIL

Despite firm crude oil prices in the global markets, price of the scrip improved during the week. Globally oil prices are bound to go down with the explicit announcement of OPEC to increase daily crude production. However, one should not expect any reduction in POL prices in Pakistan which indicates the earnings of the Company will remain higher. The interest in Company was also because it is a pick of speculators and in the absence of good news for other sectors buying interest is always there. A fact which can possibly affect earnings of the Company is often ignored. With the expected commencement of PARCO mid-country refinery and use of its existing pipeline for dispatch of crude oil, most of the POL products will have to be transported by road which is bound to increase expenditure of freight.

FAUJI FERTILIZER

The interest of investors reappeared in fertilizer companies mainly due to their improved earnings potential. The price increase in Fauji scrip was relatively higher as compared to Engro for two reasons — better cashflow due to commencement of DAP production at FFC-Jordan and lower expected revenue of Engro. Both Fauji and FFC-Jordan many factor Sona brand of urea and in case of further export of urea Fauji is expected to benefit because of FFC-Jordan's location in Port Qasim vicinity. Besides, any improvement in cashflow of FFC-Jordan will lower the current liquidity crunch of parent company.

MILLAT TRACTORS

Two factors brought some interest in the tractor assembly units particulary Millat Tractors due to an agreement with a Korean company to manufacture its products in Pakistan and GoP's commitment to give specific attention to agriculture sector. It is expected that soft-term financing for purchase of tractors will be available and GoP will allocate more funds to ADBP. However, many ifs and buts may allow the GoP to enhance allocations for ADBP as well as an average farmer's income is also expected to remain low due to a number of factors.

UNION BANK

The official announcement regarding takeover of Bank of America's operation by Union Bank did not create much of an interest in its shares. Some analysts say that any one who was interested in the scrip had made the purchases before the official announcement — which was both more than a ritual. It is true that the Bank has inherited large deposits and advances but it will be a test for the management to retail those clients.

AL-FAYSAL INVESTMENT BANK

The scrip was a pick due to its earnings forecast resulting in an eight per cent increase in its price. It was expected that with higher earnings the Bank will announce 15 to 25 per cent cash dividend. Al-Faysal enjoy the image of being a better entity among all the investment banks. It is considered one of the pioneers of Islamic mode of financing and also enjoys a niche market. As the deadline, for abolishing Riba from the banking system is getting closer institutions like Al-Faysal will attract the attention. This attention will translate into higher deposits and advances. However, it is difficult to forecast whether the spread will improve or not.

 

MOVEMENT AT A GLANCE

SCRIP

HIGH

LOW

TURNOVER (SHARE MN)

CLOSING PRICE

Hub Power Co.

16.00

15.30

108,816,000

15.70

Pakistan State Oil

163.00

160.35

45,770,100

163.00

Millat Tractors

113.95

92.40

428,000

109.00

Al-Faysal Invest. Bank

13.60

10.45

1,323,500

13.60

Union Bank

8.70

8.40

33,500

8.70

Fauji Fertilizer

41.35

39.60

8,496,700

41.35