THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated May 24, 2003

 

MARKET THIS WEEK

The KSE-100 Index this week rose by 2.55% (77 points) to 3,080 from 3003 points at the end of the last week. During the week, the market continued its bull trend, as volumes rose with the index. Although, volumes in no way compare to the volumes in December 2002 and January 2003, the improvement in volume does suggest, despite our earlier reservations, that there is some strength in this bull rally. The average daily volume was 232mn shares this week as compared to 129mn shares last week, reflecting an increase of 80%. 

 

 

 

Investors are likely to be curious about what triggered the current bull run in the stock market, as most economic and political triggers are almost status quo. In our opinion, there were two main reasons for the current upsurge in the Index 1) key stocks like Hubco, PSO and POL had under performed the market during the last few weeks and finally began to catch up, and rose by 1.29%, 3.03% and 8.74% respectively during the week; and 2) SNGPL attracted considerable interest from one major industrial group in the country and we believe that an Engro like situation may develop in the stock. The price of the scrip rose 3.23% during the week.

OUTLOOK FOR THE FOLLOWING WEEK

Okay!! We are getting tired of telling our investors to be cautious, but at these high levels, we believe that the investors should take exposures on fundamentally strong stocks rather then the market as a whole. Some stocks like SNGPL are in an overbought position and investors should refrain from any long term position on these levels. On the other hand, stocks like Engro, FFC, PTCL and even Hubco have some margins to increase and at the same time are fundamentally strong and investment in them is likely to earn some profits. However, we advise our investors not get carried away. We expect the market to move within a narrow band during the following week where 3100 is likely to be targeted on the higher side, while 2,991 should be the stop loss level.

FUNDAMENTAL CHANGES

This week has been rather dry where news and new developments are concerned. However, the few noteworthy developments this week are as follows:

•DG Khan Cement, the largest cement company in the country, signed a agreement with Habib Bank Limited for a term loan of PkR1.6bn, which will replace the more expensive International Finance Corporation loans. DGK Cement has approximately PkR3bn as debt on its balance sheet and the management is using the current low interest rates to reduce the financial charges on these loans.

•A minor development on the privatization front this week was the Privatization Commission asking interested parties to submit Expressions of Interest for the sale on minimum 26% and maximum 51% stake in the state owned bank as well as management control. As the share is not listed, market is not likely to have any effect. The reason why we believe that this is a minor development is because, in our opinion, the privatization of the institution is still a long way away as attracting investment in the banking sector at this point is likely to be difficult. Furthermore, HBL has numerable problems like over staffing, high NPLs and lack of IT infrastructure, which is expected to have a negative effect on the price the government gets for the company.

•With the federal budget right around the corner, numbers of the various budgetary grants, etc., have began flowing in. During the week, the government announced that it is planning to provide budgetary support to KESC and Wapda in the tune of PkR55bn. We believe that this support is not surprising given the considerable rise in the furnace oil prices and less than needed rise in power tariffs.

•The government also announced during the week that the government plans to retain approximately 25% ownership of KESC post privatization. The government also gave the outline of steps it is planning to take to ensure to make KESC a self-sustaining organization to facilitate its privatization.

 

 

TOP STORIES

ICP-SEMF: REVISITING THE INVESTMENT CASE

We believe that investors need to revisit their investment case for ICP-SEMF. First of all, with the privatization and transfer of management control to PICIC, we believe that ICP-SEMF's investment case has changed. We do not expect the Fund to payout majority of the capital gains accruing from PSO's privatization on two accounts: (i) The usual tax exemption clause for the mutual funds is not applicable on capital gains any more, thus PICIC can opt for a lower payout; (ii) PICIC's own fund management fee is directly attached with the assets under management, thus the management can try to retain most of the gains of PSO to enhance its asset base. Thus, we believe that investors need to tone down their expectations of a huge dividend payout from ICP-SEMF. Closed ended mutual funds historically trade at substantial discounts to their NAVs. In ICP-SEMF's case, this discount to NAV has declined to a mere 10% based on our calculation. We recommend an Underweight on ICP-SEMF.

POL CONSUMPTION-MAINTAINS A STEADY TREND

The recent data available on POL consumption shows the continuation of a healthy trend for the industry. Overall POL consumption during Jul-Mar FY03 has increased by 1.7% over the corresponding period last year. The surprising element in the data is the 3.5%YoY growth in FO consumption during the said period. We believe that the higher FO consumption is primarily on two accounts: (i) increased consumption by IPPs which are typically operating at a higher load factor during the Nov-Mar period, (ii) the higher inventory levels maintained by IPPs and WAPDA on account of government's instructions to meet any supply threat during Iraq war.

SNGPL-LARGER THAN LIFE

The recent outperformance of SNGPL is raising quite a few questions among investors over the fundamental basis. We do agree that SNGPL is truly a growth story, but what investors have to determine is what price they are paying for this growth. In a market where dividend yield has become a benchmark, SNGPL's dividend yield falls miserably when compared to other yield plays in the market. We do not expect any immediate impact of the growth plans of the company translating in to the bottomline, which is likely to result in a constraint on the dividend payout of the company. We advise investors to book profits at current levels as the over exuberance of the investors is likely to be toned down with FY03's results.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

11.49

11.79

2.65

Total Turnover (mn shares)

647.69

1,163.17

79.59

Value Traded (US$ mn.)

392.11

813.67

107.51

No. of Trading Sessions

4

5

 

Avg. Dly T/O (mn. Shares)

129.54

232.63

79.59

Avg. Dly T/O (US$ mn)

78.42

162.73

107.51

KSE 100 Index

3003.35

3079.95

2.55

KSE All Shares Index

1891.07

1941.76

2.68

 

 

Source: KSE, MSCI, KASB