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STOCK WATCH


By SHABBIR H. KAZMI
Updated Sep 24, 2005

September 27th will mark the last of the big-name annual results when PTCL announces its annual results, ended 30th June. The stock has remained in limelight for almost everything except the annual results. InvestCap has tried to examine the expectations from PTCL, both in terms of profitability and the ever important dividend. It expects PTCL to announce profit after tax in the range of Rs 28.6-29.1 billion. This would be close to the profit of Rs 29.2 billion (EPS: Rs 5.72) announced by the company last year. However, last time PTCL had benefited from a tax adjustment to the tune of Rs 1.6 billion, which boosted the bottom-line. When one excludes the beneficial tax entry recorded last year, PTCL is expected to show a growth of 3.7-5.5% in profitability. The main reason for this nominal growth is the substantial decline in tariff for NWD and international outgoing calls, combined with a sharp reduction in the international settlement rates for international incoming calls. As was the case with OGDC, where the government capitalized on its capability to retrieve higher dividends from public sector organizations, one may see a high final dividend from PTCL as well. If all goes well on the privatization front, this should be the last dividend on 88% shareholding for the government. PTCL is expected to announce a final dividend in the range of Rs3.0-3.5/share, which would take total dividend for the year to Rs5.0-5.5/share.

Economic Coordination Committee has recently agreed in principle to allocate 100mmcfd gas to one of the fertilizer companies, sufficient for one million tons urea plant. However, the government is yet to decide about either Fauji Fertilizer or Engro Chemical, both expressed interest in setting up a new urea plant. As per the existing fertilizer policy, new project would be given feedstock gas at a discounted price of US$0.77/MMBTU fixed for a period of 10 years from commencement if the Gas Sales Agreement would be signed before 30th Jun 2005. Since the new investment will come on line after this deadline, the existing fertilizer policy is no longer applicable. Therefore, the government's decision about whom to supply gas would now be based on mainly two factors 1) better feedstock gas prices bid and 2) shorter project execution time proposed by the two parties. FFC has currently notified the government of its intention to set up a new urea plant with the implementation time of 4-5 years. The existing balance sheet structure of FFC allows the company to fund 75% of the project cost (new plant cost about US$ 600 million) through debt. Chances for FFC getting gas supply are dim due to monopoly control issues (FFC currently controls roughly 60% of market share). Engro has also shown its interest in setting up urea plant. The company intends to re-locate a second hand plant, which is expected to take at least 2.5-3 years to commence production. While the project is expected to cost US$400-500 million, the company is expected to fund this through a combination of debt and equity. The addition of this is likely to double the existing production capacity of Engro.

Oil & Gas Development Company has discovered hydrocarbon reserves at Tando Allah Yar (Sindh). The initial production from the well was 1,310 barrels of oil and 4.17MMCFD of gas per day. Analysts estimate a full year impact of Rs 558 million (EPS: Rs 0.13) on the bottom line, assuming current prices of oil and gas. Tando Allah Yar North Well-I is a joint venture between OGDC and GHPL with OGDC pre and post discovery stake of 95% and 77.5% respectively. OGDC would bring this discovery online along with development of its first discovery in the same block, which is slated to be in 2008. The Company has been granted two more exploration licenses. The licenses cover a total area of 4,888KM and entail a commitment of total investment of US$ 4.18 million and a contingent investment of US$ 6.25 million. Due to its prospects and exploration economics, these zones have been actively explored areas in Pakistan. Following this, OGDC exploration portfolio has increased to 27 operated and 7 non-operated exploratory licenses. OGDC has assumed an aggressive stance on exploration and development fronts, post management change and government's pressure to enhance indigenous sources of energy. The company plans to drill a total of 57 wells in 2006, comprising of 35 exploratory and 22 developments wells.

D.G. Khan Cement announced its financial results for year ended 30th June, posting Rs 1.68 billion profit after tax (EPS: Rs 9.12) as against Rs 794 million profit (EPS: Rs 4.31) in 2005. This translates into a growth of 111.6%. Better than anticipated results are attributable to Rs 579 million increase in other income, which grew from Rs 128.462 million to Rs 707.692 million. The surge in other income could be a result of one-time capital gain which D.G. Khan may have booked on the sale of its short term holdings in its associate companies. At the gross level the company posted a growth of 40%YoY, backed by 22% growth in sales and 7% increase in the retention prices. The topline of the company grew from Rs3.9 billion in 2004 to Rs 5.27 billion in 2005, a growth of 35.9%. As expected the company announced a cash dividend of Rs 1.5 per share.

Nishat Mills announced its full year result, which is in fact a 9 month period due to the change in the year ending date. The company reported a bottom-line of Rs 1.5 billion (EPS: Rs 10.36) as compared to Rs 751 million (EPS: Rs 5.17) in previous year, a growth of 100.4% despite the shorter year. The massive growth in profit has been a result of improvement in company's gross margin due to a 40% fall in cotton prices and lifting of the quotas under free trade regime. The growth in bottom-line was further improved by capital gain of Rs 300 million booked on sale of 11 million shares of MCB. The company announced a dividend of Rs 2.5 per share (25%) as compared to the full year payout of Rs 2 per share (20%) in 2004.