index down by 0.17%. Buying in the blue chip
companies helped the index to cross 5400 mark on Wednesday but the
volume remained low owing to lack of interest from institutions and
large brokerage houses. The rally in Blue Chips continued on Thursday
and the index recorded a 0.27% gain. The slow and steady growth
ultimately pushed the index to 5,453.55 on Friday, thus taking the WoW
gain to 1.88% over last week's close of 5,352.97.
OUTLOOK FOR THE FUTURE
The announcement of corporate board meetings is
likely to drive the market next week. We expect most of the companies to
come up with the dates for their June 30th result announcements. This
may affect trading volumes positively, which have seen some slowdown
owing to CVT levy. The liquidity situation is fairly comfortable with
badla rates likely to stay in their current ranges. On politics,
opposition is unlikely to come up with a joint candidate against Shaukat
Aziz in the upcoming elections. Consequently, we feel that Shaukat Aziz
will face little difficulty in winning the elections. Thus politics will
remain a net positive factor for the market. We do foresee some stock
shifting where small investors are likely to raise cash for their PPL
The major developments this week were:
•As per the PTA Chairman, Major General (retd.)
Shahzada Alam Malik, a quality survey will be carried out on the
services of the four cellular firms within a month.
•Hubco announced on Monday that the return to
service of Unit 4 was delayed till September against the initially
expected date of August.
•As per the Federal Bureau of Statistics,
Pakistan's trade deficit shot up to US$3.2bn on the back of a 26% rise
in imports versus an 11% rise in imports in FY04.
•Mobilink's chief executive claimed that the
company has injected US$275mn worth of capex into its existing network.
•The National Electric Power Regulatory Authority (NEPRA),
the power sector regulator, announced a reduction in electricity tariffs
for the Lahore Electric Supply Company (LESCO) and the Multan Electric
Power Company (MEPCO).
•Pioneer Cement has announced a 50% rights issue
@PkR10/share to finance its expansion plan.
•SBP raised PkR65.5bn during Wednesday's T-bills
auction, exceeding its pre-auction target of PkR60bn. Yields on the 3
and 12-month T-bills registered a 30 bps and 45 bps increase
respectively during the process.
•As per the assemblers, bookings have dropped by
30-50% since the NTN requirement was imposed.
•PC is likely to call for fresh expressions of
interest (EOIs) for the privatization of Pak Arab Fertilizer.
•SNGPL has planned an investment of PkR11.48bn
BANK OF PUNJAB — CHANGING FORTUNES
The Bank of Punjab (BoP) recently witnessed a change
in senior management and with it, a significant turn in fortunes. We
anticipate a continuation of the strong financial performance
demonstrated by the bank in FY03. Our analysis suggests a fair value of
PkR52 per share for BoP. The recent run up in the share's price has
factored in the expected positive developments. HOLD.
THE BANKING INDUSTRY
Only efficient banks with competent management, a
reasonably large branch network and with an agriculture and consumer
focus should excel in the future banking industry scene. For a little
over a decade now, the Pakistani banking sector has been undergoing a
profound transformation, and if the existing scenario is any indication,
the next ten years are likely to be just as exciting. The future of the
industry is likely to be earmarked by increasing competition, further
consolidation and continued growth in consumer financing. Additionally,
the management of potential portfolio losses is also likely to be a key
factor affecting the performance of the banking sector in the short to
BOP — BIG CHANGES IN THE MAKING
The introduction of new senior management at the Bank
of Punjab (BoP) during 2003 has led to a radical transformation in the
organization. Changes ranging from a keener focus on key target markets
to the induction of fresh, young faces are redefining the shape of the
bank. We feel that the market is also in the process of realizing the
impact these ongoing improvements are likely to have on the bank's
IMPROVING FINANCIAL HEALTH
The changes being implemented at the Bank of Punjab
have already started translating into larger profits for the
organization. The healthy increases registered in deposits, advances and
the net income of the bank during FY03 bode well for the measures being
taken by management. We expect FY04 to experience a continuation of the
strong growth witnessed at the Bank of Punjab during FY03. Higher net
mark-up and dividend income are likely to be the main catalysts for this
growth. We also expect tight controls on the cost structure to continue
to aid the bank in improving its bottom line.
We rely primarily on three measures, namely
price-to-book ratio (PBR) analysis, price-to-earnings ratio (PER)
analysis and market relative PER analysis to assign a fair value to the
Bank of Punjab. It would be prudent to mention here that we consider a
PBR based analysis to be more pertinent for the valuation of a bank,
however, PER based analyses are also presented since investors appear to
follow them as well while making their decisions. These valuation
methods assign a fair value range of PkR52-59.2 per share to BoP. Sole
reliance on our preferred valuation measure, the price-to-book value
multiple, suggests a fair price of PkR52 per share.
KEY RISK FACTORS
We see six key factors that have the potential to
derail the ongoing improvements in the bank, and hence significantly
affect our fair value estimates for the bank. These are: (1)
a change in management, (2)
an unforeseen shock to the market, (3)
a change in the "acceptable" PBR trading range for the sector,
(4) rising PIB
poor performance by NIT, and (6)
political interference in the bank.
Mkt. Cap (US $ bn)
Avg. Dly T/O (mn. shares)
Avg. Dly T/O (US$ mn.)
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KSE 100 Index
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