THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated Sep 07, 2002

 

MARKET REVIEW: BREAKING THE BARRIER

The almost two month long excitement about the Hubco final dividend announcement finally ended in

 

an anti climax with the BoD announcing a 36% final dividend, which was as per market expectations, although we must admit the optimists were disappointed. Shell and PSO fueled the rise in the tail end of the week coupled with Nestle. Another interesting event this week was the final decision regarding UBL's privatization. MCB refused to participate in the open bidding process in spirit and Bank Alfalah emerged as the winner for only PkR350mn more.

THIS WEEK'S PERFORMANCE

The KSE-100 rose by 1.43% this week to close at 2,008.86 points from 1,974.59 points. The week was very active with the KSE-100 going up and down like a swing. Hubco was the stock to watch out for this week, with the total trading volume of the share at 288.25mn shares, constituting 48% of the total volume of shares traded. Hubco's share price declined to 2.78% this week largely due to profit selling at higher levels.

Other shares of interest included PSO, which rose to PkR203.20, and Shell, showing belated performance and rising by approximately PkR50 to close the week at PkR288 per share. MCB was also among the lead gainers with its share price rising by 7.30% mainly after losing the bid for UBL. The average daily volume declined to 170.09mn shares with Hubco, PTCL, PSO leading the list followed by DG Khan Cement and MCB.

OUTLOOK FOR THE COMING WEEK

We expect the market to maintain current levels during the following week. However, we do foresee a shift in the limelight from Hubco to other stocks, which had been ignored due to all the excitement over Hubco.

SECTOR REVIEW: CLOVER PAKISTAN PERFORMING TO POTENTIAL

With most FMCG results now out, we believe that our overweight stance on the sector has been justified. FY02 is a year in which FMCG's should show healthy revenue growth and improved profitability reflected in stronger margins. Clover Pakistan Limited, which released its results and declared a final dividend of PkR3.25, is a case in point.

VOLUME GROWTH FUELS REVENUE GROWTH BY 140%

FY02 has been extraordinarily good for Clover, with sales growing by 140%. We believe that this growth was based upon introduction of new brands in the market including Maxwell coffee as well as enhanced distribution of existing products, in particular its Tang sachet introduced last year. In our opinion, there is considerable scope for growth for FMCG's in the Pakistani market by merely introducing new products.

CLOVER'S PHENOMENAL REVENUE GROWTH LENDS EMPIRICAL SUPPORT TO OUR BELIEF.

IMPROVED CORE PROFITABILITY

Gross margins too indicated considerable improvement, at 35.9% for FY02 relative to 30.6% in FY01. With much, though not all, of Clover's operations centering on selling imported products (Tang is manufactured locally), the company is likely to have felt a decline in its raw material import costs due to the appreciation of the rupee after 9/11. Even though detailed accounts are not yet available we feel that the single most important reason for the improvement in gross margin is this lower rupee import cost.

On the other hand, SG&A expenses increased during FY02 relative to FY01 in proportion to sales. This we feel is likely to be as a result of higher expenditure to expand the distribution network of the company. Moreover, we also believe advertising expenditure is likely to be higher on a full year basis. Lastly, the commendable increase in sales and profitability in the half year may have prompted an upward revision in salaries and hence salary expense. However, overall core profitability represented by operating margin improved to 16.0% from 13.5% in FY01.

Other income declined during the year. We believe that this is likely to be primarily due to lower rates of return on savings accounts due to the reduction in interest rates during FY02, relative to FY01. Also in FY01, the company made substantial exchange gains, which did not likely feature in its earnings this year.

NPAT GROWTH OF 169%

Although financial charges increased notably in absolute terms, they remained stable in proportion to sales. However, since interest rates declined during the year, and the company has not likely taken on any long-term loans, it seems that its utilization of short term financing increased especially in the fourth Khadim Ali Shah Bukhari & Co. Ltd. quarter. In any case, net margin improved to 8.2% relative to 7.3% last year, which on the back of the comprehensive growth in sales implies a phenomenal net profit growth of 169% for Clover Pakistan.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

7.68

7.79

1.43

Total Turnover (mn shares)

1065.19

850.44

-20.16

Value Traded (US$ mn.)

899.39

651.24

-27.59

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

213.04

170.09

-20.16

Avg. Dly T/O (US$ mn)

179.88

130.25

-27.59

KSE 100 Index

1974.59

2008.86

1.74

KSE All Shares Index

1233.76

1251.62

1.44

Source: KSE, MSCI, KASB