October 28, 2002, where we expect it to announce a
net profit of PkR490.6mn (EPS: PkR36.6). Currently the share is
trading at a discount of 12% from our DCF based value of PkR1070/share
and there is still a lot of potential upside due to which we maintain
our BUY stance for Unilever at current price.
With a recovery in the disposable income in the
first half of the year FY02 the revenue of Unilever increased by
13.5%. We expect the revenue to increase even further in the second
half due to 1) economic situation will continue to improve further in
2H02 2) the demand is likely to pick up due to the Ramzan in November
and 3) Afghanistan factor. Keeping this in mind, we expect Unilever to
announce a net profit of PkR1.95bn for the year FY02 while of PkR490 -
500mn in 3Q02.
Margins of the company have improved tremendously
during the year due to the rupee appreciation and reduction in import
duty from a high of 30% to 25% in FY03 Budget. We expect this trend to
continue since Rupee is expected to appreciate even further relative
to the US$ which is likely to improve the margins of the company even
further. However, being conservative we have assumed a 3% growth in
sales which include the expected possible expansion of the market
during Ramdhan , while kept the gross margin on the constant of level
of 31% for 3Q02. This flow to the bottom line of the company resulting
in a net profit of PkR490.6mn in the 3Q02.
UNILEVER'S PERFORMANCE DURING 1H02
Lever's performance during the first half of the
fiscal year FY02 was exceptionally good where the company witnessed
almost a 54% growth in its bottom line. This was primarily due to the
margin improvement as a result of appreciation of the Pak rupee by 7%
against the US$ during the period under review. Further, reduction in
import duty from a high of 30% to 25% also helped margins to improve
from an average 25-26% to 31%.
After the incident of 9/11, the economic conditions
also improved massively, increasing disposable income levels which is
reflected from an increase of 13.5% in revenues of the company.
However, there were some rising concerns regarding wholesalers
overstocking on personal care products during the period, but the
company also has addressed that. Further a decline of 35% in financial
charges also improved the net profitability of the company to PkR959mn
against PkR623m in 1H01. The company also managed to pay a dividend of
PkR58/ share, up 55% YoY.
INVESTMENT PERSPECTIVE
Lever is currently trading at a PER of 6.4x on FY02
earnings against last five-year average PER of 27.2x, which shows that
the scrip is massively undervalued. At current price Lever is trading
almost at a discount of 12% from our DCF based value of PkR1070/share.
BUY!
MARKET REVIEW: AND AWAY WE GO....
This week, the investors as a whole ignored the
post election turmoil and focused more on the positive developments
such as the news of withdrawal of Indian and Pakistani troops from the
borders and the continuation of aid from donor agencies. In addition,
quarterly earnings for most companies are due before the end of this
month and consequently, earning and dividend speculation added to the
overall upbeat sentiment in the market. We believe that although the
market has not priced in the political uncertainty currently
prevailing, stock specific buying coupled with high levels of
liquidity will control the market in the immediate future.
MARKET THIS WEEK
With the results of Hub power, Engro, Shell and ICI
due this week, the sentiment in the market remained bullish throughout
the week. The KSE100 crossed 2200 to close the week's trading at 2,237
points, up 125 points from the previous week's close of 2,112 points.
Although all stocks remained fairly active this
week, the awakening of the sleeping giant i.e. PTCL added fuel to fire
as the scrip rose by 5% to close the week at PkR21 per share. The
stagnancy of the stock inspite of significant Index growth was
becoming a matter of concern for investors and punters. Hubco closed
the week at PkR25.50 per share and most analysts are saying that it is
likely that the stock will test PkR27 per share going forward. PSO led
the upward rally of the Index, rising by over 12% to close the week at
PkR189.40 per share.
The average daily volume almost doubled this week
to 245mn share as against 150mn shares last week, with the volumes
rising considerably in the latter half of the week.
OUTLOOK FOR THE FOLLOWING WEEK
We expect the market to remain range bound between
2,150 and 2,250 and recommend investors to book profits at higher
levels. The negative trigger could be the prevailing political
uncertainty, on the other hand, privatization related new may trigger
an upward rally.
DAILY DRAMA
Although pivotals like PTCL and Hubco remained weak
on Monday, activity in low cap stocks led the Index to increase by 7
points to 2,119 points. MCB was the most active stock of the day
followed by PTCL and Hubco. Another interesting feature of the day's
trading was that FJFC attracted considerable investor interest on
account of positive quarterly result expectations .
Tuesday began on a rather lackluster note. Later in
the day, there were some rumors floating around about PSO's
privatization being delayed and speculative selling in the stock
resulted in the share price declining to PkR163. However, buying at
lower levels caused the scrip to sour to PkR174 per share. Engro also
remained active and in spite of a 20% dividend announcement and
improvement in performance of the company, the scrip closed lighter by
60 paisa. Overall, the bullish sentiment led by PSO caused the Index
to rise to 2,142 points. Volume too increased to 134mn shares.
Wednesday was dominated by PTCL and Hubco with the
former rising by 5 paisa and the latter remaining steady at previous
days' level. Hubco's 1Q03 results were announced and the lack of any
movement in price was largely due to the fact that the market had
already priced in the 'as per expected' results. Strong buying
continued in PSO and Engro because of which the Index rose to 2,178
points during the day. The index closed at 2,169 points with the
volume traded rising considerably to 275mn shares.
The Index continued to soar and crossed the coveted
2,200 barrier, however some profit booking resulted in the Index to
close slighter lower at 2,194 points. High level of activity in PTCL,
PSO and FJFC dominated the market and the volume traded increased by
8% over the previous day's volume to 296mn shares.
Massive buying by foreign and institutional
investors in PTCL, Hubco and PSO resulted in the volume traded to
increase by 32% over the previous days levels to 390mn shares. PTCL
and Hubco both rose by 70 paisa per share while PSO rose by a
phenomenal PkR13.20 per share. Strengthening of PSO and Hubco coupled
with a 35 paisa increase in PTCL lead the Index to cross the 2,200
barrier to close the week at 2,237 points.
MARKET ROUNDUP |
| .. |
LAST WEEK |
THIS WEEK |
% CHANGE |
|
Mkt. Cap (US $ bn) |
8.17 |
9.17 |
12.24 |
|
Total Turnover (mn shares) |
747.24 |
1222.32 |
63.58 |
|
Value Traded (US$ mn.) |
424.52 |
800.68 |
88.61 |
|
No. of Trading Sessions |
5 |
5 |
|
|
Avg. Dly T/O (mn. Shares) |
149.45 |
244.46 |
63.58 |
|
Avg. Dly T/O (US$ mn) |
84.90 |
160.14 |
88.61 |
|
KSE 100 Index |
2111.73 |
2236.76 |
5.92 |
|
KSE All Shares Index |
1320.13 |
1393.31 |
5.54 |
