THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated July 10, 2004

 

The bullish spells continued on the first trading session of the week. NBP and Bank of Punjab led the market owing to a PkR2.55/unit dividend announced by NIT, which pushed the index up by 0.87%. Bulls aggressively welcomed PPL in its very first provisional trading day and it closed at PkR116.5/share as opposed to the offered price of PkR55/share. Selling pressure from both individual and institutional investors eroded trading activity on Tuesday, which pulled the

 

 

 

 

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 subscriptions.

FUNDAMENTAL CHANGES

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 during FY04-05.

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 medium term.

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 future performance.

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.

VALUATIONS

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 yield, (5) poor performance by NIT, and (6) political interference in the bank.

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

24.80

25.38

2.34%

Avg. Dly T/O (mn. shares)

364.38

273.25

-25.01%

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

322.57

247.53

-23.26%

No. of Trading Sessions

5

5

 

KSE 100 Index

5352.70

5453.55

1.88%

KSE ALL Share Index

3526.04

3584.26

1.65%