STOCK WATCH

 

 

By SHABBIR H. KAZMI
Updated Sep 11, 2004

 

Currently rumors are circulating in the market that the government may remove Capital Value Tax (CVT). The rationale behind removal of CVT can be that the government would not be able to collect the quantum of revenue that it was hoping for as market volumes have significantly reduced. Average daily volumes during 2003-04 were 387 million shares and these would have been used in the calculation of expected revenue from CVT. However, to date the volume has gone down by 43% to 222 million shares. Moreover, the imposition of CVT has had a negative impact on

 

 

 

 

the market performance as well. Consequently, it is possible that the government may decide to remove CVT in order to improve the market sentiment as it is hardly getting any meaningful amount from it.

UMER FABRICS

The fate of the three textile companies namely Umer Fabrics, Nishat Mills and Nishat Chunian is likely to be decided in an Extra Ordinary General Meeting (EOGM) scheduled for September 29, where the merger of Umer Fabric with the other two companies will be discussed. The rationale for the merger is to increase profitability on account of: a) increase in the top line as the capital base of both the surviving entities would be larger and b) reduction in operating costs owing to economies of scale. Although the swap ratio has not been decided as yet, it is expected that for 1 share of Umer Fabrics, 0.6 shares of Nishat Chunian and 0.48 shares of Nishat Mills would be received. On the basis of this assumption, the merger is likely to bring an increase of about 12% and 8% in the bottom line of Nishat Chunian and Nishat Mills respectively. Earnings are likely to be diluted by about Rs 3/share and Rs 0.40/share for Nishat Chunian and Nishat Mills, respectively. This may affect the share prices of these companies in the short run. However, it is believed that this would bode well in the long term.

PICIC

The sole existing DFI is planning to set up a life insurance company. The company already has a license to start the life insurance business and will allocate one billion rupee to establish it. A Takaful (Islamic insurance) company would also be set up in 2006 after the creation of the life insurance company. PICIC's management has prepared a PICIC vision 2008, which includes setting up of four business lines every year until 2008. Amongst the plans is the establishment of a dedicated Energy Mutual Fund in 2005 to invest in power projects. PICIC also plans to bid for the management rights of NIT next year, to launch a monthly income open ended mutual fund for senior citizens, another mutual fund in 2006, and set up a dedicated brokerage house in 2007.

 

 

DEWAN SALMAN FIBRE

Dewan Salman Fibre, one of the major companies of Dewan Group, has acquired 49% stake in an oil and gas exploration company, Rally Energy Pakistan. This company operates and holds 50% working interest in the Safed Koh area situated in Punjab. Dewan Salman Fibre would invest to a maximum of US$ 2 million (Rs 120 million) in drilling operations. Since the company has the additional debt raising capacity to finance such an investment plan, it is not expected to turn to equity source of finances.

FAUJI CEMENT

The company has posted Rs 314 million profit after tax for the year ended June 30, 2004 as compared to Rs 524 million losses for last year. In the last quarter of 2004, Fauji Cement has completely charged off a deferred cost arising from issue of shares on discount in 2002. Since this is non-cash accounting adjustment it has effectively offset a similar non-cash adjustment of deferred tax asset of Rs 710 million recognized earlier. Debt re-profiling will enable Fauji Cement to save Rs 0.24/share next year in reduced financial charges. Due to the non-cash nature of the two adjustments the fair value its share remains at Rs 15/share. The results are very much in line with expectation.

PAKISTAN OILFIELDS

The board of directors of the company will be meeting on September 11 to review financial results for the year ended June 30, 2004. According to a report from KASB Securities, the company is expected to post Rs 2,384 million profit after tax. During a year 2004, the company suffered a minor setback as a result of production stop in its Meyal field. It is believed that one of the major reasons for skipping interim dividend pay out was its interest in acquiring a cellular license. While the consortium, of which the company was a member, initially won the bid for the cellular license, internal disputes within the consortium resulted in non-payment of the required portion of the bid fee by the stipulated time. Pakistan Oilfield's share in the consortium was 40% and in case of payment of the license fee, company's share of the license fee would have amounted to Rs 3.4 billion. It is believed that since this investment opportunity had gone by, the final dividend for 2004 is likely to compensate for the skipped interim dividend.

Company High  Low Closing Week's Turnover

Oil & Gas Dev.

63.70

63.25

63.25

63,752,500

Fauji Fert Bin

20.50

20.25

20.45

55,393,000

National Bank

70.00

69.00

69.55

51,663,900

P.T.C.L.A

40.95

39.80

39.80

42,506,000

Hub Power

31.05

30.50

30.80

30,020,500

Nishat Mills

45.10

43.50

44.70

19,770,500

Pak Oilfields

208.00

203.00

204.70

19,161,400

Fauji Cement

14.65

13.95

14.10

16,181,500

P.I.C.I.C.

72.00

68.40

69.20

6,782,400

P.S.O. SPOT

254.25

253.50

254.25

512,900