STOCK WATCH

 

 

By SHABBIR H. KAZMI
Updated Aug 09, 2003

 

The KSE-100 index gained 303 points and closed at 4,323 level on last trading day of the week. All eyes are now set at 5,000 level expected to be achieved before end September as no one seems to be ready to think about a possible decline.As the index continues upward movement prices of all the volume leaders register persistent increase. The recent hike in prices of PSO, HUBCO and others show the growing gap in demand and supply of quality scrips. Though, Privatization Commission keeps on talking about enormous of buyers in the entities on the privatization list, no major achievement has been made as yet.

 

 

 

It was announced in the Budget 2003-04 that the GoP would raise Rs 4 billion during the first quarter from divestment of its holding in state-owned entities but the public offer has not been made as yet. This is the most appropriate time to divest shares because the liquidity level is very high and sentiments are bullish. Many analysts suggest that the Commission must ensure listing of all the entities on privatization list and offer 5% shares, at least, of each entity to general public. It is the preemptive right of local investors to get a stake in the entities being offered for sale to strategic investors.

FAUJI FERTILIZER COMPANY

The company has posted lower than expected profit due to increase in operating expenses and lower gross margin. The GoP is also not allowing increase in urea price despite increase in feedstock price. The increase in expenses was largely due to promotional campaigns undertaken to boost sales, as the orders had trickled lower. The company treats transportation of manufactured urea from factory to warehouse as a period cost and hence it is included in the cost of goods sold, regardless of whether it is sold in that period or not. This too had a detrimental impact on margins. The company is expected to post improved bottom line due to higher offtake of fertilizer in the second half of year 2003. Financial charges are also expected to come down on loans pertaining to Pak Saudi Fertilizer.

ADAMJEE INSURANCE COMPANY

The scrip has remained among the top favorites of the speculators. The scrip has historically traded at exorbitantly high P/E ratio exposing its investors to excessive risk relative to other equities listed at the KSE. Besides the rumours of out of the court settlement, the positive change in sector dynamics and improvement in financial performance that the company is likely to experience are also swaying some long-term investors. Although the earnings outlook appears reasonable and improved, analysts believe that the scrip is over valued at current levels. A stupendous pace of growth in number of vehicles does not provide any gains as claims continue to grow. However, economic upturn provides a silver lining for the insurance companies. The competition is expected to further heat up.

DEWAN SALMAN FIBRES

The largest PSF producer in the country has been struggling over the years to maintain its market share and attain economies of scale to face the future challenges. The company has made several capacity expansions over the years to cater to a wider segment of the market. However, its return on equity declined to 6% in year 2002 from the last five-year average of 11%. This is expected to further decline. Analysts forecast Rs 48 million profit after tax for the year 2003 as against Rs 317 million profit for the last year. This decline of 84% is attributable to decrease in gross margin and higher operating expenses. The financial structuring deal with the IFC has been completed and syndicate of local banks has provided Rs 1.2 billion loan at attractive interest rates. After this the company would be saving about Rs 210 million financial charges. The company is in the process of setting up specialty fibre project, which will add value to its offerings. The project may help in boosting profit and if cost controls are not in place it may further reduce the profit.

 

 

DEWAN FAROOQUE MOTORS

DEM is among the second tier and small cap companies that gained the attention of investors in the recent past. It is the cheapest stock in the auto sector and reached unprecedented highs. According to analysts it is currently trading at 1225 premium to its long-term fair value. Most specifically the investors were over-enthused by the company's plan of launching BMW by the end of 2005. The launch of BMW might enable the company to serve a specific niche market. However, it might still not provide the brand identification that its competitors are thriving upon. Auto sector is typified by surplus demand but Deawn is running at around 58% capacity utilization that illustrates the weak demand for its products. The company has a wider product mix and has presence in almost all the segments of the automobile market. In the smaller car segment the growth in volume may be marginal because of upcoming competition.

MOVEMENT AT A GLANCE

SCRIP

HIGH
(Rs.)

LOW
(Rs.)

CLOSING 
PRICE

TURNOVER
 (SHARE)

Hub Power

45.80

41.05

45.80

833,161,500

P.T.C.L.A

38.40

33.05

38.40

502,899,000

P.S.O. XD

316.60

304.50

316.00

226,250,900

D.G.K.Cement

41.25

37.65

39.70

133,261,500

I.C.I.

73.40

67.50

73.30

93,935,300

M.C.B.

49.25

43.35

49.25

55,090,500

National Bank

37.45

34.80

37.45

35,163,500

Adamjee Ins

77.50

73.70

77.50

29,287,000

Fauji Fert

98.95

97.75

98.10

25,716,100

Shell Pak

458.00

451.40

458.00

2,927,900