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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: Activity remains muted

Updated on Aug 21, 2000

After another lackluster trading week that started with the KSE 100 Index level at 1569.05, the market went up a mere 0.19% wow and eventually closed at 1571.97.

Activity remained dull as the trading band narrowed and volumes declined. Institutions remained on the sidelines and still seem to be awaiting confirmation of market direction before making a comeback. Active participation by the local jobbers, however, managed to hold current levels and prevented the Index from deteriorating further. Both the depleting forex reserves and the pending financial assistance from IMF have acted as major impediments in the investors' way to the market ring.

The results announced by Engro and Fauji, as per expectations, were not encouraging, but prices of the two stocks seem to have had discounted this decline in profitability well in advance, as no further fallout was witnessed in the respective stock prices this week. Shell, on the other hand, posted very good results. Surprisingly, the market ignored its excellent revenue and profit numbers and no drastic upward shift was noticed in the scrip.

Immediate support is expected at 1550, which if breached will push Index down to 1400. If the initial barrier of 1600 is crossed, major resistance can be expected at 1800 levels.

Fauji Fertilizer Company (FFC)

Weak Sector Fundamentals

Following in the footsteps of other fertilizer players, Fauji fertilizer I H FY00 results are also on a declining note. Stagnant urea prices and increase in feed stock prices amounting to a 29.10 % drop in gross profit is for the most part the story behind the profit declines. However, the dividend aspect continues to remain strong with FFC announcing a 20% interim dividend.

1H FY00 profitability dropped 38.63% YoY to 917 mn. CoGS rose considerably higher, as gas prices increased further then we had expected. With the government keen to encourage the Oil and Gas sector, we believe that leaner gross margins would continue to dictate earnings growth well into the second half of this year.

Weakening top line growth effects trickled down to a more squeezed operating margin of 30.6%. In the absence of any volumes growth, we believe that FFC continues to cater to its set market share, thus avoiding any additional costs in its efforts to break into new markets.

Fertilizer producers have, in general, had a good run with gas costs—where major cost increases have come through at periods of strong demand. However, the demand-supply balance is currently working against local producers. Gas-related costs have increased steadily in recent years, and the pace is likely to increase two to three years down the road.

Fauji has benefited from a fixed rate for raw material on roughly 47% of its capacity. Since the subsidy is available on gas used for raw materials only, we believe Fauji is the least affected producer in the event of an increase in gas prices. Despite this relative advantage, the fact remains that gas prices are expected to rise steadily going forward, putting a damper on margins and making pricing power more important for urea producer.

We have revised our earnings model and now project EPS for FY 00 at Prs 8.9, down from the Prs 13.8.

Given 1) the static domestic fertilizer price outlook; 2) stable market share; and 3) our +3.5% YoY 2000E domestic demand growth, we believe that 2H00 sales would be marginally higher than 1H00. Our conservative forecast takes account of the risks from continuing high fuel/gas costs as well as the need to maintain higher rebates in order to maintain market share.

Although the company's underlying core-business operations remain intact, we see limited near-term share performance due to the above reasons.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.68

7.69

0.13

KSE 100 Index

1569.05

1571.97

0.19

Total Turnover (mn shares)

642.56

366.53

-42.96

Value Traded (US$ mn.)

460.80

326.06

-29.24

No. of Trading Sessions

5

4

.

Avg. Dly T/O (mn. shares)

128.51

91.63

-28.70

Avg. Dly T/O (US$ mn)

92.16

81.52

-11.55

MSCI Pakistan Index:

Pak Rs.

109.26

110.58

1.21

US$

52.72

52.87

0.28

Source: KSE, MSCI, KASB


 

ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX lEVEL CHANGE EXCHANGE

Bombay

BSE

4347.04

+52.86

1.23%

Hong Kong

Hang Seng

17440

-182.01

-1.03%

Singapore

Straits Times

2185.52

-21.53

-0.98%

Sydney

S&P ASX 200

3344.2

+7.90

0.24%

Tokyo

Nikkei

16280.49

+119.46

0.74%

 


 

EUROPE & UNITED STATE OF AMERICA
EXCHANGE IINDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

7232.42

-46.01

-0.63%

London

FTSE

6529.3

+11.10

0.39%

Paris

CAC

6594.35

-40.99

-0.62%

Dow Jones

Industrial

11046.48

-9.16

.

NASDAQ

Composite

3930.34

-10.53

.