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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: When will this blood bath end?

Updated on Mar 26, 2001

Last week we had stated that the market in the near term would likely dip to 1350 - 1375. Well the KSE -100 Index tested the lower end of that range in the week ending March 22, 2001 closing at 1350, down 46 points over the week. YTD market is down by 10.4%. If it is any consolation, the global market also witnessed a meltdown last week with the DJIA index at its two-year low but of course that is no consolation. The key issues are:

a) Why has the market fallen so much and

b) When will this bloodbath end and the market recover?

The reasons for the sharp fall in the market are now in the open. The Morgan Stanley Dean Witter Investment managements, Pakistan Investment Fund (PKF) being liquidated by end May or June 2001. That's the bad news. The good news is that 85% of the Fund has already been liquidated. Our understanding is that PKF had total holding worth US$ 33 millions or so as at end December 2001. If 85% has been converted into cash that leaves only about US$5.0 million in stocks. Thats roughly Rs. 300 million, which is not that much. Another point to note is that the market has absorbed US$ 28 million in selling from just this source since the start of this year. We estimate another US$14 - 18 million has been sold by other foreign funds. Thus the market has absorbed will over Rs.2.5 billion of net selling and still managed to lose only around 7% in terms of the index fall. It was only on last two weeks that the index lost 70 points to close 1350. We believe that once the official announcement was made by Morgan Stanley, the weak holders unwound hold their long positions and dumped stocks prior to the long weekend. This causes the slump in the market on the last trading day of the week.

The surge in average daily volume from around 50 million shares to 128 million shares on Thursday end conforms to our views regarding weak holders sell off. It is also likely that some smart operators may have shorted some scrip's hoping to pick them up more cheaply next week. This would have exaggerated the downslide a little more.

The question now is: " What next?"

A cynic might respond: " its anybody's guess". Unfortunately, we cannot do that. Our job is to use our best abilities and judgment and provide investors with a degree of insight regarding future market direction. In this respect our view is based on a combination of key market drivers and their likely impact on market direction.

Sectour outlook

Lever Brothers PakistanóLeveraging its way forward

Now that internationally as well as domestically slower growth in the second half of 2000 has been acknowledged as a reality, and not an avoidable possibility, investor expectations have been dampened. Lever Brothers Pakistan Ltd. has, however, all along had a few tricks up its sleeve as its financial results released this week reveal. By better pricing policies, margin management and chiseling away at its costs it has demonstrated massive bottom line improvement. Profit After Tax increased by a huge 75.2% to Rs1,340 mn from the FY99 PAT of Rs.765 mn. Furthermore, Net Margin improved to 6.5% from 4.0% in FY00. Levers' has proved that to improve margins, top line growth is definitely not the only way.

Valuation:

The primary effect of these results is that Lever's share valuations have become significantly more attractive. Here we take a look at the following valuation parameters:

Return on Equity: The ROE ratio may be the most telling of the lot, in our opinion. The ratio reveals that the return for Lever's shareholders' works out to 47.8%. That is one of the highest in the blue-chip universe.

Dividend Yield: Levers had already declared and paid interim dividend of Rs33 for FY00 and a final dividend of Rs83 per ordinary share of Rs50. For FY00 this works out to an almost unbelievably high payout ratio of 232%. The dividend yield associated with this payout ratio is 14.8%. This too is the highest in the higher range not just amongst large caps.

Price to Earnings Ratio: Levers' Earning per Share for FY00 is Rs100.73 up from Rs57.45 for FY99. The Price to Earnings ratio has improved to 7.78x for FY00 as opposed to 13.65x during FY99. This shows a massively improved PER, which is now at its historical lows.

Adjusted Price to Book Value: Levers' share is currently trading at a Price to Book value of 0.74x. This shows that there is a massive premium over book value at the current price and investor gains are there for the taking, over the longer term.

EV/EBITDA: Levers' improved margins have increased EBITDA values substantially. At present Levers is trading at an estimated EV/EBITDA value of 2.1x. Although this measure is at a slight premium to the market, we believe that such a premium is justified given the company's market dominance and blue chip status.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

5.82

5.58

-4.12

KSE 100 Index

1396.29

1350.92

-3.25

Total Turnover (mn shares)

463.34

332.46

-28.25

Value Traded (US$ mn.)

267.11

203.94

-23.65

No. of Trading Sessions

5

4

 

Avg. Dly T/O (mn. shares)

92.67

83.12

-10.31

Avg. Dly T/O (US$ mn)

53.42

50.99

-4.56

MSCI Pakistan Index:

Pak Rs.

91.08

90.36

-0.79

US $

38.82

38.33

-1.26

.Source: KSE, MSCI, KASB



ASIA PACIFIC & AUSTRALIA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Bombay

BSE

3635.28

-78.69

-2.12%

Hong Kong

Hang Seng

12583.36

-38.49

-0.30%

Singapore

Straits Times

1715.31

+31.79

1.89%

Sydney

S&P ASX 200

3145.3

-43.50

-1.36%

Tokyo

Nikkei

13214.54

+360.57

2.81%

.



EUROPE & UNITED STATE OF AMERICA
EXCHANGE INDEX LEVEL CHANGE EXCHANGE

Frankfurt

DAX

5544.67

+156.65

2.91%

London

FTSE

5402.3

+87.50

1.65%

Paris

CAC

4951.13

+126.31

2.62%

Dow Jones

Industrial

9504.78

115.30

 

Nasdaq

Composite

1928.68

30.98