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THE KASB REVIEW
STOCK MARKET AT A GLANCE

  1. FINEX WEEK
  2. STOCK WATCH
  3. STOCK MARKET AT A GLANCE

The KSE Overview: Consolidation reaches critical point

Updated on Aug 14, 2000

The market's initial strength stalled at 1600, and after starting the week at 1562.45, swayed sideways to close at a slightly higher level of 1569.05, 0.42% up wow.

The KSE 100 Index plunged to test the most critical support level of 1550 when Hub lower announced its half yearly result, reporting a loss of Rs.6 bn. Although the company has moved into the red, this result basically indicates the current realization of the cash flow status of the company.

On the flipside, pursuant to the news of the PkR 20 bn expansion announced in the gas sector. the two Sui's witnessed renewed interest by investors. Supporting the positive sentiment was the hint of some development on the privatization front by the government. We feel that any action that follows is likely to trigger a drastic upward movement, in the absence of which the market is expected to continue to remain range bound.

Investors restricted themselves to selected stocks, namely Tripack, Adamjee Insurance, and the Textile sector. Although Tripack and Adamjee rose 7% and 10% over the week respectively, trading activity in the blue chips was contained, and bottom line support to the KSE 100 Index came mainly from the textile scrips. Japan's decision to call off anti-dumping duties on certain categories of Pakistani textiles exports from August 1 is largely responsible for the heightened activity witnessed in the market.

Trading range is wedged between the band of 1550-1600 and RSI is in neutral territory. The imminent breakout of the band will define near tend direction. Resistance will be met at 1600, and if breached, the Index may touch 1800 levels.

Lever Brothers Pakistan (LBP)

Rafhan Bestfoods comes into the picture

As LBP already commands a virtual monopoly within the branded tea and ice creams segments, the recent acquisition of Bestfoods will undoubtedly open up a whole new market segment to be capitalized upon by LBP domestically. The market share in tea, which represented almost 28% of total revenue over 1999, is 42% and LBP plans on raising this to 50% in the coming 3-4 years.

Since LBP is already dominant in soaps, detergents and tea, competing with both local and imported products, acquisition possibilities in these segments are likely to bring out limited potential. Going forward, food business offers more choice.

Operating expenses edge up y-o-y

Operating expenses for FMCG companies largely relate to advertising and distribution. As a portion of sales, higher expenditure implies company focus towards strengthening its brand franchise. Under a documented economy, companies exerting greater effort to establish a brand franchise are likely to see stronger top-line growth. Lever Brothers Pakistan is ideally placed to reap the greatest benefits from a documented economy with near monopoly status in the tea and ice cream segments.

Interim Results: PAT up 32.2%

LBP's interim results-2.23% drop in sales and a profit growth of 32.29% - signifies a strong company in a weak operating scenario. Although demand for its products remains strong, the persistent aspect of smuggling continues to be a cause of concern for the earnings potential. Operating margins were down by 0.13% but the drop was compensated by interest cost savings, which fell 35.13%. DPS also remained attractively poised at Prs 33.

A declining interest rate scenario income resulted with other income being on the lower side dropping by almost 25% to Prs 14 mn. With the initiative of information technology in LBP, ensuing improvement in the supply chain management will have a positive impact on LBP's working capital.

A weakening rupee continues to be of concern for LBP. Lowering margins on tea in view of a reported increase in smuggling further alleviates our concerns for top line growth for LBP.

Valuations

LBP continues to be one of the strongest brand names in the domestic market. With the highest penetration as compared to competitors, LBP likely to reap the maximum benefits from a documented economy. In our view the key positives in the stock is the recent documentation drive and plans for increased presence in the food industry through Rafhan Bestfoods. We estimate this factor to drive investor sentiments. We continue to maintain our full year estimates for Lever Brothers for FY 2000 of Prs 934 mn.

Stock Outlook

Strong EPS growth and investor focus on defensives have increased investor focus on LBP. The small free float continues to cause the stock price to remain range bound. The likelihood of a stock split is better now than ever before because Unilever (Indonesia) has undertake a 1-for-10 stock split, with Hindustan Lever also following in its footstep with a similar stock split.

In the event of such a development we would be witness to a broader base of investors and increased movement in the share price. With key fundamentals quite positive, LBP will continue to remain the top pick of individual or institutional investors alike. We maintain our Long Term Buy recommendation.

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.66

7.68

0.26

KSE 100 Index

1562.45

1569.05

0.42

Total Turnover(mn shares)

584.49

642.56

9.94

Value Traded (US$ mn.)

408.31

460.80

12.86

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

116.90

128.51

9.94

Avg. Dly T/O (US$ mn)

81.66

92.16

12.86

MSCI Pakistan Index:
Pak Rs.  108.23  109.33  1.02
US $  52.40  52.77  0.72

 

Source: KSE, MSCI, KASB


 

ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX lEVEL CHANGE EXCHANGE

Bombay

BSE

4192

-61.23

-1.44%

Hong Kong

Hang Seng

17214.42

-118.79

-0.69%

Singapore

Straits Times

2101

+16.67

+0.80%

Sydney

S&P ASX 200

3309.1

-6.20

-0.19%

Tokyo

Nikkei

16117.5

+141.85

+0.89%

 


 

EUROPE & UNITED STATE OF AMERICA
EXCHANGE IINDEX LEVEL CHANGE EXCHANGE
Frankfurt DAX 7016.59 -21.32 -0.30%
London FTSE 6363.5 +46.40 +0.73%
Paris CAC 6461.35 +106.42 +1.67%
Dow Jones Industrial 10767.75 61.17  .
NASDAQ Composite 3787.36 27.48  .

Frankfurt

DAX

7322.98

+42.01

+0.58%

London

FTSE

6384.5

-2.80

-0.04%

Paris

CAC

6553

-9.54

-0.15%

Dow Jones

Industrial

11027.80

119.04

 

NASDAQ

Composite

3789.47

29.48