. .



THE KASB REVIEW
STOCK MARKET AT A GLANCE

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

The KSE Overview: Subdued Sentiment Keeps Market Range Bound

Updated on Oct 02, 2000

The market was quiet and range bound and witnessed further decline in volumes since last week. The KSE 100 Index opened at the 1552 level and closed for the week at 1564.78 levels, up 0.82% WoW.

Trading for the week started on a positive note and the Index posted a gain of almost 22 points to peak for the week at 1572.62 levels on a modest volume of 94.5 mn shares. Profit making in the absence of any major market news kept sentiment subdued. Conflicting rumors regarding the IMF-Pakistan accord and the Hubco issue provided opportunities to jobbers to hammer the large cap scrips. Eventually, Index succumbed to below 1550 levels on an intra day basis on the second last day of the week to test a low of 1545.44. However, institutional buying emerged around this time, which helped the Index to recover and close above the support level.

The highlight of the week was the textile sector where strong buying euphoria emerged the market. Nishat Mills traded to highs of 28.75. Ibrahim Textiles and Zainab Mills, concerns of Ibrahim Group both changed hands at a premium. Most of the textile companies close their books in September, so expectation of a handsome payout is the key feature keeping sentiment buoyant on this sector.

The Index will continue to remain range bound in the band of 1550-1600 with major support and resistance at 1500 and 1650 levels. Though market had continued to find strong support at 1550 levels, market participants will look for positive outcome of Hubco and the IMF assistance program for an upsurge in the Index. The textile sector is expected to continue outperforming the market.

Southern Power: Back from the Dead

After nearly a dozen test failures and the ensuing cost over runs, SEPCOL has finally started commercial production. Tariff rationalization is already in the bag, with more than a dozen IPPs already signed up, we believe that pressure tactics from WAPDA will lessen considerably.

Rising oil prices however will continue to dent WAPDA's ability to generate electricity in a profitable manner, given the cap on raising electricity rates domestically.

The Company

SEPCOL is a furnace oil fired thermal power plant located near Lahore, with a gross capacity of 117 MW and a dependable capacity of 112.5 MW. The plant consists of five generators with a capacity of 23.4 MW.

In the firing line

Shortly after the commencement of the financial year FY99, the company received a notice of termination of the implementation agreement from the GoP on the basis of improper business practices. Consequently SEPCOL initiated arbitration proceedings in the ICA.

After the signing of the revised MoU, SEPCOL agreed to lower its tariff from 5.57 cents/KWh a 22-year project life to 5.19 cents/ Kwh on a 30-year project life basis.

According to the details available, the life of the project has been extended from twenty-two to thirty years. During the first twenty-two years tariff reductions provide a savings of around $ 15-17 million. During the period from year 22-30 years, electricity purchase from WAPDA, including capacity payments would be somewhere in the region of US$45. Moreover, WAPDA would be waiving liquidated damages worth $4.3 million.

Risk Factors

The principal risk factors attached to the IPPs are more at the macro level than at the company level. We believe that given the recent restructuring of tariffs, SEPCOL will remain relatively unscathed from any pressure tactics by the government.

Rising furnace oil prices will continue to remain a cause of concern for the company. Although the pressure will be next to nothing as fuel is treated as a pass through item, the ensuing impact on WAPDA's cash flow will remain a cause of concern for the company.

The Business Dynamics

Although SEPCOL has executed the MoU with WAPDA, the actual legal implication continues to remain implemented. Financial restructuring forced by the events of the last two years has been agreed between the company and its lenders and the plant is operating at its normal load factor.

Currency crisis implications

In the face of the current currency devaluation, we would like to reemphasise that IPPs including SEPCOL provide a natural hedge against a devaluating Pak Rupee. The reason being tariff rates are fixed in US$ and a possible devaluation tends to boost earnings in Rs terms.

Recommendation

SEPCOL is trading at a FY00E P/E of 2.5x as compared to a market P/E of 8.6x, making it one of the least expensive IPPs. On this basis we believe that even after discounting for operating risk, SEPCOL continues to offer an attractive upside potential

With regards to sector we recommend a trading Neutral/Accumulate stance. We assume a very conservative approach towards the power sector. Ongoing media wars, pricing pressures and growing uncertainty of the new regulatory/political issues continue to remain a focal point for current investors and prospective investors alike. In the event of any possible exposure we recommend KEL due to its superior valuation and lower operating risk as compared to the industry .

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.00

7.00

KSE 100 Index

1552.00

1564.78

0.82

Total Turnover (mn shares)

577.66

518.83

-10.18

Value Traded (US$ mn.)

447.46

295.05

-34.06

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

115.53

103.77

-10.18

Avg. Dly T/O (US$ mn)

89.49

59.01

-34.06

MSCI Pakistan Index:

Pak Rs.

107.61

107.56

-0.05

US $

47.84

47.55

-0.62

.Source: KSE, MSCI, KASB


.
ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX lEVEL CHANGE EXCHANGE

Bombay

BSE

4090.38

+23.00

0.57%

Hong Kong

Hang Seng

15648.98

+233.23

1.51%

Singapore

Straits Times

1997.03

+32.09

1.63%

Sydney

S&P ASX 200

3298.8

+8.10

0.25%

Tokyo

Nikkei

15747.26

+120.30

0.77%

.


 
EUROPE & UNITED STATE OF AMERICA
EXCHANGE IINDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

6787.36

-45.40

-0.6%

London

FTSE

6256

-8.10

0.12

Paris

CAC

6268.98

-42.05

-0.67%

Dow Jones

Industrial

10650.92

-173.14

 

NASDAQ

Composite

3672.82

-105.50