THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated January 31, 2004

 

MARKET THIS WEEK

The market showed more volatility during the current week than it has over the past several weeks. The bulk of this volatility can be attributed to the 86.96 points, or 1.83 percent, decline on the first day of the week. The primary cause of this fall was the prolonging of the COT period on account of Eid holidays. However, a large portion of this loss was regained on Tuesday and overall, the index continued on its weekly trend of slow 

 

 

 

 

upward movement. The index closed at the new all-time high of 4,841.59 on Friday's session, as opposed to 4,764.12 at the end of last week, translating into a WoW gain of 1.63 percent. As we had pointed out last week, the main catalyst for the ongoing rally in the index has been a run-up in second-tier stocks, which made the first-tiers more attractive. It was the interest of investors in the latter that considerably helped in regaining Monday's losses. Stocks such as PTC and Hubco continued to perform well throughout the week and stretched the upward journey of index for yet another week.

OUTLOOK FOR THE FUTURE

Continued inflow of earnings reports from the corporate front is likely to be the key driver of the market's direction for the next few sessions. Given that trading in the stock market will be carried out only on one day in the coming week on account of Eid and Kashmir Day holidays, the effects of these results are likely to spill over to the trading sessions in the week after the next one. We continue to believe that the market has discounted the expected results, and barring any major surprises, these announcements should not translate into a significant increase in volatility.

FUNDAMENTAL CHANGES

The major developments this week were:

•Tetley tea was officially launched in the country by Tetley Clover Pakistan.

•Data released by the National Fertiliser Development Centre (NFDC) reported a 2.7% YoY rise in urea consumption during 2003.

•Attock Refinery Limited (ARL) announced that it will be exporting 45,000 tons of naphtha and will be seeking bids from pre-qualified parties.

•WAPDA and OCAC officials met on Saturday to discuss demand and supply situation in the oil industry.

•Shell reported a 33% dip in its bottomline. The major factors leading to a decline in earnings were (i) an 18% drop in gross margins and (ii) a 15% increase in marketing expenses.

•TRG announced another acquisition. The company used one of its portfolio companies, Central Voice, to acquire AnswerXact.

•The Privatization Commission held a road show in Lahore for SSGC's upcoming public offering.

•Packages Limited announced strong results for FY03. The company reported a 24% jump in profits to PkR813.5mn (EPS: PkR17.11) from the PkR655.4mn (EPS: PkR13.79) reported last year.

•The Karachi Stock Exchange gave its approval to the offer for sale document of Sui Southern Gas Company. The offering is scheduled on Feb. 9-11, with the offer price of PkR26/share.

•Strong increase in sales and a sizeable decrease in SG&A expenses helped Nishat Chunian to improve its profits on a YoY basis. Gross margins declined sharply, both on a QoQ and YoY basis, and stood at 11.05%.

•Engro earned PkR1556mn profits during FY03, about 37% higher YoY.

•The Federal Cabinet gave its approval for the Cellular Policy.

•Unilever declared a 9% drop in revenues for FY03. On a YoY basis, the company reported a marginal rise in revenues, on the back of increased HPC and Beverages sales and reduced Foods sales, whilst Cost of Sales remained almost constant, thereby slightly improving the company's Gross Margins to 31.6% (2002: 31.4%).

•Pakistan paid off 14 ADB loans worth $1.17bn, which were payable between 2009-2019, using the SBP's sinking fund.

PSO - 1H04 RESULT ANALYSIS

PSO outperformed market expectations by announcing after tax profits of PkR2,118mn for 1H04, almost 3% up from 1H03. As expected, the decline in FO consumption has adversely affected PSO as its net sales have declined by 12.5%. Gross profits also declined by 7.7% YoY to PkR4,488mn while gross margins have improved to 6.04% from 5.73% mainly on account of higher sales of HSD. We believe that an increase in PSO's market share in HSD business has helped PSO in mitigating the impact of declining FO sales.

1H04 RESULTS - REPEATING FY02'S TRICKS

PSO announced its 1H04 results earlier today, posting after tax profits of PkR2,122mn (EPS: PkR12.37) in 1H04, 3.1% higher from 1H03. The company also announced an interim cash dividend of PkR7.0/share, higher than last year's interim cash dividend of PkR6.0/share. The market has responded positively to the results. Obviously, the investors focusing on bottom line have been relieved to see that PSO has posted growth over last year.

DECLINE IN FO SALES DRAGGING DOWN REVENUES

A 12.5% decline in net sales can be attributed to the decline in FO sales, which have fallen on the back of reduced demand for FO. However, PSO's market share recovery in HSD business has enabled the company to mitigate the negative impact of reduced FO sales. According to our sources, PSO's market share in HSD business has edged up to 61%. HSD prices during 1H04 were also higher as compared to 1H03, which has also served to mitigate the negative impact of FO.

OTHER INCOME - A BAG OF MYSTERY

Other income once again has proved to be the saving grace for PSO. The company reported other income net of charges of PkR348mn as against a net charge of PkR260mn last year. Thus, this has resulted in an inflated earnings of PkR608mn (PkR3.54/share) from last year. We recommend that investors should focus on recurring earnings of the company, which have declined by PkR241mn YoY.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

21.73

22.16

1.98%

Avg. Dly T/O (mn. shares)

418.31

368.37

-11.94%

Avg. Dly T/O (US$ mn.)

358.02

290.73

-18.80%

No. of Trading Sessions

5

5

 

KSE 100 Index

4762.37

4841.59

1.66%

KSE ALL Share Index

3023.50

3082.30

1.94%

Source: KSE, MSCI, KASB