THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated April 12, 2003

 

MARKET THIS WEEK

The KSE-100 index increased by 3.31% to close the week at 2871 points as against 2771 points last week. The index rose sharply on the first two days of trading on the back of PSO's privatization related speculation. However, the lack of any major resolution of PSO's receivables caused negative sentiment on Wednesday. The KSE software experienced some major issues on Wednesday and as a result the market remained closed during the normal trading hours.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hence rumors plagued the trading later when the market finally opened in a special one and a half hour session in the afternoon and hence the Index experienced a minor decline. We believe that the reason for the shut down was mainly due to technical issues rather then any supply situation.

Largely positive news flows on the international front as well some speculation on privatization resulted in the volumes traded increasing and the average daily volume rose from 149mn shares last week to 187mn shares this week reflecting an increase of 26%.

OUTLOOK FOR THE FOLLOWING WEEK

For the next week, we expect PSO to be a major market driver where first speculation pertaining to its privatization as well as resolution of the receivable issues and the later on the actual decision of whether the privatization will happen in time or not is expected to determine the performance of the stock as well as the market. We believe that the coming week's direction of the market depends almost completely on the privatization decision of PSO. Should there be any major delay and God forbid a cancellation in the sell off of this company, the market is likely to come down. Hence we believe that the market is either expected to go ahead to reach new highs or decline. In this volatile situation we believe that investors should stay on the sidelines and let the speculators speculate.

FUNDAMENTAL CHANGES

Fundamentally, there were a number of interesting events this week but the extent to which each of them impacted the market is sketchy.

After considerable speculation and predictions of doom by astrologers and psychics, the war on Iraq finally neared completion. As most had expected, some with glee and others with an air of resignation, America took control of Baghdad (although if we were politically correct we would have said the allied forces succeeded in liberating Iraq). As the stock market had already discounted the fall of the Saddam rule, there was no major impact on the market. Going forward, we believe that this somewhat decrease in international uncertainty may have a positive impact on domestic stocks, provided of course that the US doesn't set its eyes on an another Muslim country.

The Privatization Commission held its board meeting this week and the market had great expectations about a possible resolution of some of the issues pertaining to PSO's privatization. However nothing major materialized. The PC did give formal approvals for the privatization of most major items. Although we Khadim Ali Shah Bukhari & Co. Ltd. believe that the privatization of PSO with all major issues resolved in imminent, the privatization is expected to be delayed as the geo-political issues settle down.

Engro's Board of Directors (BoD) meeting and the election of the new BoD was something, which was highly speculated upon in our market. The final decision was rather anti-climatic with the two parties i.e. Dawood Hercules and Engro's management reaching a compromise. The final composition of the BoD has so far not been made public but we believe that it has been worked out in the interests of both parties. In our opinion, the formation of the new BoD will end a lot of speculation on Engro, which has affected the price considerably over the last year or so.

The Committee on Fertilizer approved the proposal submitted by the urea manufacturers for the decline in urea prices by PkR20 per bag. The proposal will now be submitted to the Prime Minister for final approval. The urea manufacturers and the government will share the impact of the decrease equally. A decline of PkR10/bag would be borne by the urea manufacturers while the remaining PkR10/bag would be borne by the government in the form of reduced government levies, as well as the freezing of feedstock prices for a year instead of the 7.5% rise in June-03 as stated in the New Fertilizer Policy. As the demand for urea is relatively price inelastic, we believe that the overall increase of urea demand would be 2% to 3% over last year. However, cheaper urea is likely to enable farmers to invest in other fertilizers like DAP. The margins of the urea manufacturers are obviously going to come under increased pressure. Another important factor to note here is that this move is largely politically motivated and is not likely to bear well with the international donor agencies that are constantly demanding removal of all subsidies to the agricultural sector.

THIS WEEK'S TOP STORIES

NBP Pre-result note: Market illusions vs Realities!

 

 

We will not bore you with too much details on pre-result as much has already been said by our fellow researchers and have been published by the newspapers over the weekend. After briefly touching upon the likely results and the payouts, we are paying more attention to recent rumors in the market about NBP results. We will be discussing the unrealistic views of the market about the potential impacts of the IAS39 application on the bank. We will also conclude our today's story with a brief analysis on why we prefer NBP to MCB, the other large bank progressing these days.

NATIONAL BANK OF PAKISTAN: STELLAR PERFORMANCE

NBP declared an after tax profit of PkR2,253mn for FY02 (EPS PkR6.05) showing an increase of 96% over FY01. Furthermore, the Board declared a cash dividend of 12.5% (PkR1.25 per share) and a bonus issue of 10%. For the past five years, NBP has been amortizing approximately PkR2.7bn against downsizing expenses. This expense was completely amortized last year, and the lack of such a large expense was the major contributor to bottom line growth. Rise in net mark up income, non-mark up income as well as lower provisions, all fed the bottom line.

PSO PRIVATIZATION: BIDDING LIKELY TO BE DELAYED

With the Privatization Commission yet to announce a decision on the outstanding issues in PSO, we are now positive that the bidding is unlikely to take place on April 26. However, we believe that a resolution of these issues is imminent, and if the statement of PM's Advisor on Privatization is to be given weight, a resolution in the next couple of weeks. We however are confident that the extent of work that has been done on this transaction signifies that the transaction is likely to be completed by this fiscal year end. On the other hand, while the war in Iraq for practical purpose is over, the geo political situation will take some time to settle down.

MARKET ROUNDUP

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LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

10.32

10.80

4.65

Total Turnover (mn shares)

878.57

1079.79

22.90

Value Traded (US$ mn.)

746.44

937.10

25.54

No. of Trading Sessions

5

5

 

Avg. Dly T/O (mn. Shares)

175.71

215.96

22.90

Avg. Dly T/O (US$ mn)

149.29

187.42

25.54

KSE 100 Index

2778.62

2870.70

3.31

KSE All Shares Index

n.a

1780.81

-

 

 

Source: KSE, MSCI, KASB