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

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THE KASB REVIEW

STOCK MARKET AT A GLANCE

Updated on Apr 20, 2002

The week started off with a 25-point jump in KSE-100 Index to close at 1884 on Monday. This jump in index came on the back of heightened speculative buying in anticipation of a bull run going forward from various counters. The daily volume on Monday, on the other hand, dipped 13% to 111mn shares indicating selective buying interest of the speculators mainly focused towards the volume leaders such as Hubco, PTCL etc.

The buying frenzy of the first day was visible on the second day too with lot more vigor as evident from higher daily volume. The volume of shares traded jumped over 60% to 177mn on Tuesday from 111mn the previous day. The announcement of a tax-free budget by the Finance Minister with a focus on poverty reduction, development and growth helped improve the market sentiment to some extent. Furthermore, the US$176.3mn offer (US$42.9mn accepted by the government with a re-bidding process for four fields), by the local and foreign investors to buy government's interest in nine oil and gas fields, was also welcomed as positive news by the investors. We believe that the interest shown especially by the foreign investors in Pakistan's oil and gas sector would establish a more favorable price rally in the shares of Pakistan State Oil (PSO), which is being offered for sale by the government.

Another more interesting aspect to the story of foreign investment in the nine oil and gas fields was the credit facility of US$100mn by Overseas Private Investment Corporation (OPIC), a US government agency, to Orient Petroleum Inc. The OPIC has reentered the Pakistani market only after the US government recently lifted the 1998 sanctions, albeit on a small scale. The recent meeting between the Russian delegation and the petroleum ministry officials held in Pakistan also delved on the investment interest/plans of the Russian oil companies in the oil, gas and mineral sectors. The entrance of the Russian oil companies in the local oil and gas sector, if happens, would come with a gap of over 35-40 years. This in our opinion would result in a slow but consistent flow of private investment funds to Pakistan in the coming years.

On Wednesday, the government decided to issue PkR30bn bonds on behalf of Karachi Electric Supply Corporation (KESC) and to convert its PkR81bn losses and loans into government equity. The KSE-100 Index dropped 8 points to close slightly lower on profit taking by institutional investors. The volume dropped by over 12% to 155mn shares for the day. The market has been hesitant to cross over the 1900 psychological barrier for some time now. The market remained range bound the next day also with marginal improvement in the volume but dropped 3 points to close at 1878 level. The market, in our opinion, remained in a consolidation phase throughout the day with a directionless trading pattern.

The last day of the market saw a dip of over 15 points to 1864 level with a drop of over 21% in the volume. The Average Daily Volume (ADV), on the other hand, remained on the higher side with a 43% jump with the KSE-100 Index closing up 6 points this week as compared to 1858 last week.

SECTOR REVIEW

ICP SEMF - STILL MOST WANTED

When investors' start focusing on dividend yields, value-investing style has no place in an equity market. Value kicks in at some point in the investment cycle and when it does, the speed of price appreciation usually lead to many investors having no real winners in their portfolios if their focus has been elsewhere. While specific value stocks are quite a few in today's market in our view, for investors who would rather bet on a basket than spend time identifying specific value stocks, ICP SEMF offers a potentially attractive opportunity.

The state owned close-ended mutual fund is one of the oldest mutual funds managed by the Investment Corporation of Pakistan (ICP). Listed in 1980, its portfolio comprises heavy weights like PSO, KESC, SNGPL etc. With PSO's privatization in the picture we have increased the reward on the fund since our last call in December 01.

Investment Corporation of Pakistan has floated twenty-six closed-end funds that have a current market capitalization of around PkR3.8billion out of which SEMF's market capitalization alone is PkR2billion as on April 19, 2002. This outdoes the market capitalization of the 12 private sector funds (one open-ended and eleven closed-ended) that amount to PkR709million as of April 19, 2002. Therefore comparison of any mutual fund with SEMF in terms of the Net Asset Value (NAV) would be less meaningful but in order to better evaluate the discount to the NAV we have taken a sample of three large market capitalized private sector mutual fund and compared their discount to SEMF's discount.

PAKISTAN STATE OIL'S PRIVATIZATION... MAKES IT MORE REWARDING

The Privatization Commission had invited applications from oil companies interested in taking part in the privatization of Pakistan State Oil Co. on March 15. The government is expected to privatize PSO by the end of the third quarter of CY02 by selling its 54 per cent stake. The Privatization Minister said that a number of potential investors from western countries, Middle East and China have expressed their keen interest to take part in the privatization of the PSO. He said the transaction structure of the PSO has improved to fetch a good price.

SEMF through the GoP owns a strategic stake in PSO therefore; SEMF's holdings will be transferred to the strategic investor at the PRIVATIZATION PRICE. The entire sum would be available to SEMF's shareholders in the form of cash dividend. According to our OMC analyst PSO's share price can fetch around US$6 in a sale to a strategic investor, which would represent the potential upside to SEMF. Very simply, we assume that the strategic investor would not discount for equity market and company risk in its valuation. Hence, using our cash flow forecasts, we arrive at a fair value of between US$5.5-6.5/share.

Historically, ICP SEMF has displayed impressive dividend payouts, rarely disappointing the shareholders from cash dividend. At the current price of PkR25.60 fund is presently trading at a 31% discount to its April 19, 2002 market based Net Asset Value (NAV).

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.16

7.19

0.42

Total Turnover (mn shares)

515.86

736.67

42.80

Value Traded (US$ mn.)

259.71

424.48

63.37

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. shares)

103.17

147.33

42.80

Avg. Dly T/O (US$ mn)

51.94

84.90

63.37

KSE 100 Index

1858.62

1863.92

0.29

KSE All Shares Index

1167.80

1172.61

0.41

.Source: KSE, MSCI, KASB