An exclusive weekly Stock Market report by Khadim Ali Shah Bukhari & Co.

Updated on Sep 11, 2000

The past week witnessed active trading, registering a drastic increase of 25% in volumes. The KSE 100 Index, which was at 1514.38 levels at the start of the trading week closed at 1577 levels posting a gain of 4.14% WoW.

Trading commenced on an aggressive note and the immediate barrier of 1550 was breached with relative ease on the very first day. Hubco remained the focus of activity making a straight gain of over 12% WoW. Rumours and the consequent news regarding meeting of senior IMF officials with the visiting Pakistani entourage in New York influenced market sentiment positively. Major boost to investor interest came in the shape of an expected GoP-Hubco meeting, following the meeting with IMF.

Institutional activity drove the market as change in underlying fundamentals were perceived and discounted, as a result of which a technical breakout of 1550 materialized. Even though foreign investors continue to remain cautiously reluctant to devote their funds due to lack of sufficient confidence about a favorable outcome to the meetings with the IMF and Hubco.

Retailers were actively back in the ring, with blue chip companies continuing to remain the most sought after scrips in their portfolio allocation strategy.

Index will find immediate support at 1550 levels, and if that holds, potential upside estimate is likely to move near the 1650 levels. We believe that investors continue to tread a thin line, with Hubco likely to be the significant driver for the market.

Sector Outlook
Oil and Gas

Shell's Financial Results: Shell's (Pakistan) full annual statements for the year ending 31 .June 2000 have come out this week. We already had seen a brief summary of the financial results on August 16, but that explained only part of Shell's performance this year. The company features more value than we had anticipated. We believe that, Shell is not a growth stock, despite its 33.74%, annualized growth on EPS for the last 3 years, but rather by operating in a mature industry, it is a value stock.

Starting with net sales, revenues have gone up by 24.3%. Sales volume were up 4%, this year, compared to 11% growth last year. The volume growth was augmented by a rise in the selling price. On an average per ton basis the selling price increased by 19.7% y-o-y to Rs 16,990 per ton in comparison to last year's price growth of 4.7 % and average selling price of Rs 14,195 per ton.

In its effort to increase market share, the company has had to increase its market penetration in the lower margin regulated products. Consequently, the gross margin fell by 40 basis points to 5.5% from 5.9% in the previous year.

Operating expenses were down by 3.3% y-o-y, primarily due to a 31% decrease in advertising expense and stringent cost control in other areas of operations. The company, in our opinion, has adopted a stricter criteria for sale on credit, and consequently has been able to eliminate bad debts expense for the year.

Financial charges have gone up by 25.4% y-o-y to PKR 43 mn. This is not due to higher cost of interest expense, as the company has completely repaid its PKR 73 mn working capital loan, but rather due to higher bank charges. The reasons for higher banking charges, in our view, is due to higher international petroleum prices, increasing the company's cost for opening LC ( Letter of Credit).

With the deregulation of the downstream oil sector expected to increase margins and the anticipated rise in domestic POL prices, resulting from higher international oil prices, we maintain an overweight stance on oil marketing companies. We believe that PSO's financial results for FY00, to be announced later this year, would show a healthy growth.

Currently, trading at a PE of 8.4X based on FY00 earnings, it is trading below its historical high. The company has a track record for paying out dividends, this year's dividend payout ratio of 45% has resulted in a dividend yield of 5.3% (Shell PKR310). The company's stock, due to its potential for earning growth, has been able to outperform the market.

Going forward, in the regulated POL product category, on the basis of government's requirement for fuel surcharges and higher international oil prices, we expect domestic prices of petroleum to rise soon. This heeds well for earning growth, but could be partly offset by lower volume growth (as seen last year) due to slower economic growth.

In the unregulated category, i.e. lubricants, Shell has been able to increase its market share and simultaneously use branding power to increase margins. With more POL products being deregulated, we believe that margins will increase going forward.

The argument for a quasi currency hedge existing for these oil companies is still intact. more so when international petroleum prices are to firm at the USD 33 per barrel level.

MARKET ROUNDUP
..	LAST WEEK	THIS WEEK	% CHANGE
Mkt. Cap (US $ bn)	7.26	753	3.72
KSE 100 Index	1514.38	1577.00	41.4
Total Turnover (mn shares)	586.88	760.96	29.66
Value Traded (US$ mn.)	403.71	534.28	32.34
No. of Trading Sessions	5	5
Avg . Dly T/O (mn . shares)	117.38	152.19	29.66
Avg. Dly T/O (US$ mn)	80.74	106.86	32.34
MSCI Pakistan Index:
Pak Rs.	104.95	109.57	4.40
US $	49.38	51.56	4.415

.Source: KSE, MSCI, KASB

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ASIA PACIFIC & AUSTRALIA
EXCHANGE	INDEX	lEVEL	CHANGE	EXCHANGE
Bombay	BSE	4668.27	+39.34	0.85%
Hong Kong	Hang Seng	17275.45	-156.50	-0.9%
Singapore	Straits Times	2135.05	-6.44	-0.3%
Sydney	S&P ASX 200	3320.3	+13.70	0.41 %
Tokyo	Nikkei	16501.55	+201.09	1.23%

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EUROPE & UNITED STATE OF AMERICA
EXCHANGE	IINDEX	LEVEL	CHANGE	EXCHANGE
Frankfurt	DAX	7267.77	-105.57	-1.43%
London	FTSE	6600.7	-88.50	-1.32%
Paris	CAC	6703.36	-131.10	-1.92%
Dow Jones	Industrial	11220.65	-39.22
NASDAQ	Composite	3978.41	-119.94