Author Topic: Reports of various brokerage houses  (Read 32824 times)

0 Members and 1 Guest are viewing this topic.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Reports of various brokerage houses
« Reply #-1 on: October 10, 2008, 03:46:55 PM »
The changing risk parameters substantiate our view that the market is yet to see a
bottom before consolidation kicks in. A lot has changed since the KSE
management placed a price floor on 28 August.
???? If historical multiples are any guide, contraction in multiple to historical levels
would imply 40-50% downside or index levels of 6,078-7,927.
???? Any certainty on future currency direction will be useful in limiting the slide
towards trough valuation.
Heightened risk yet to be reflected

Pakinvestorsguide

Reports of various brokerage houses
« Reply #-1 on: October 10, 2008, 03:46:55 PM »

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« on: October 10, 2008, 04:05:47 PM »
What can save the doomsday scenario
Of late, Pakistan’s external account vulnerability has found more focus than any other issue. Any
certainty on this front will be useful in limiting the slide towards trough valuation. To this end, we
expect the market to closely watch (1) the upcoming Friends of Pakistan Conference in Abu Dhabi,
(2) any indication of Pakistan moving towards the IMF program, (3) the much talked about Saudi Oil
Facility, (4) bilateral flows, and (5) SBP’s premature monetary easing.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #1 on: October 16, 2008, 11:36:52 AM »
KSE to remove price floor
???? KSE has decided to remove the current price floor on 27th October and revive the
old price movement limit of 5% on either side.
???? While stakeholders and media reports have discussed various options for bringing
stability to the equity market, we believe the modalities would require more time
and the recent measures to stabilize the market in August proved insufficient.
???? We expect the SBP to explore ways to support liquidity as the recently announced
measures to generate excess liquidity would be hardly sufficient to meet the
seasonal borrowing requirement of the textile sector.
???? Our view remains negative on the market as we believe the stock prices are yet to
incorporate higher risk aversion and the changed macro backdrop that pose a risk
to corporate earnings growth.
KSE floor to go on 27th October
In a notice issued to members, the board of Karachi Stock Exchange (KSE) informed that it has
decided to remove the current price floor and revive the old price movement limit of 5% on either
side. The decision removes the uncertainty on removal of price floor placed on 27th August and
should improve market volumes (virtually nil now). The newly appointed Finance Advisor has
created some positive vibes among investors and corporates alike with his statements but we
believe the equity market still awaits more visibility on concrete actions to address current macro
imbalances. Our view remains negative on the market as we believe stock prices are yet to
incorporate higher risk aversion and the changed macro backdrop that poses a risk to corporate
earnings growth.
Stabilization measures: a few options in the news
Stakeholders and media reports have discussed various options for bringing stability to the equity
market. The options widely discussed include: (1) an equity market support fund with a total size of
PRs20-30bn (US$250-380mn); (2) a put option to existing investors, especially to foreign investors;
(3) encouraging banks to restore financing against shares; and (4) lowering the cost of leveraging.
The recent attempts in Aug 08 to introduce a market stabilization fund reportedly could arrange
only PRs4-6bn as against the target of PRs20bn. We contend that: (1) the modalities are yet to be
worked out, which would require more time and (2) the recent measures to stabilize the market in
August proved insufficient.
Encouraging statements but we await actions
In a recent interview, the new Finance Advisor has ruled out the possibility of country default and
has broadly outlined the much-awaited game plan to address the fiscal and external imbalance
(taxes on real estate and agriculture, and focus on worker remittances, bilateral and multilateral
borrowing). The Advisor also hinted at a fallback plan to ensure foreign fund flows into the country,
which we construe as reverting to the IMF program.
Liquidity - important steps taken
After a 2% cut in CRR, the State Bank of Pakistan (SBP) has allowed the use of government
securities (HTM only) for borrowing under its repo/discount window. We estimate the two measures
would create about PRs60-90bn liquidity. Given higher risk aversion among lenders and
speculation of brokers default, the additional liquidity will take some time before it finds its way into
the equity market. Meanwhile, since the banks are already touching their loan ceilings (80% ADR
vs. CRR +SLR of 28%), we expect the SBP to explore ways to support liquidity as the recently
announced measures to generate excess liquidity would be hardly sufficient to meet the seasonal
working capital requirement in 4Q from the textile sector.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #2 on: October 17, 2008, 11:51:06 AM »
KSE Index is actually at 7,400-7,700


 
October 16, 2008 (JS Research)

 

(PDF report is also attached)

 

The official closing of Pakistan’s benchmark Index was 9,184 points yesterday (Oct 15, 2008). This is very close to Aug. 27, 2008 level of 9,145 when the regulators imposed price floor rule as Index fell to 14-month low to avert, what exchange believes, any implications to the wider financial system. With hardly any activity on the official cash counter, we have seen a substantial increase in off-market deals along with activities in the odd-lot counter where there is no price floor applicable. Based on that we believe, the current Index level is between 7,400-7,700. We have calculated the Index based on the data of these two markets. 

 

Index at 7,700 points based on odd-lot market

Volumes in the odd-lot market have been very low as the exchange has imposed a limit whereby one investor (based on one UIN) can buy or sell only 1 share less than marketable lot that means 99 shares in a day (as most of the stocks have a lot of 100 shares). Based on yesterday’s closing of this market, the Index comes to 7,700 points, 16% lower than the actual closing. The execution prices of this market, we think, is a rough estimation as to where the actual buyers are. Interestingly in the odd-lot market, shares of E&P firms were traded at 14-17% discount. Financial companies (including banks, insurance, etc) were seen traded at 20-25% lesser than the official closing price.

 

Index at 7,400 as per off-market

Huge transactions have been witnessed recently in the off-market window of the Karachi Stock Exchange because there is no price limit. In the last 3 trading sessions the average daily volumes in this market was 7.8mn shares (US$3.4mn) compared to 0.7mn shares (US$0.1mn) traded on the normal counter.

 

A portion of the deals executed at the off-market counter is the actual buying and selling by the investors and thus reflecting the true market value of the stocks. Based on yesterday’s transactions, we have estimated that KSE Index is close to 7,400 points, 19% down from the official closing.

 

Selective buying advised at 25% discount

As we mentioned in our Strategy note dated Sep 30, 2008 captioned ‘After lifting of price floor’, if availability of funds, on which government is working since last many weeks, is less than the actual requirement, we could see the index falling 12-25% to 7,000-8,000 levels after the lifting of the price floor mechanism. This assumption is based on historic trends using years 1999 and 2002 as proxies for a worst case scenario. Hence, in the short run we advise investors to invest on dips (ideally at 25% or higher discount) as there are more seller and few buyers in the off-market and odd-lot counter. At discounted prices we like defensive, high-dividend yielding stocks in which foreigners holding is minimal such as HUBCO, PPL and FFC.

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #3 on: October 17, 2008, 01:02:12 PM »
Record CFS rate as global turmoil deepens (Pakistan Weekly Review)

 
Major stock markets across the globe have collapsed last week despite financial bailout packages. This is due to rising concerns that the ongoing US led credit crisis would end up in a global recession. However, local market remained protected due to price floor, as KSE 100 Index increased by 1.67 points or 0.02%. Average volumes at Karachi market were recorded at 1.7mn shares (US$0.3mn), down 99% from last 12-month average of 185.9mn shares (US$319mn).

 

Global market crash continues

Global financial crisis continues to deepen with Dow Jones and FTSE trading at 5 year lows. MSCI EM & EM Asia indices are also trading at a low of almost 3 years, down by 17% and 14%, respectively WoW. The worsening global liquidity situation prompted US Fed to cut interest rates by 50bps. This led seven central banks world over to also announce similar rate cuts. With foreigners holding 25% of free float in Pakistan , we could have seen selling if floor rule was not there.

 

Pakistan market yet to see the impact

Pakistan market is yet to absorb the impact of the global sell off and other negative factors like weakening economy, security concerns and ratings cut by S&P. The continued imposition of the floor rule on Aug 27, 2008 has kept the local market immune to the global crisis thus far. Unless the government arranges huge funds, the local equities will fall once the floor is lifted.

 

Soaring CFS rates at 63%

CFS, the traditional form of badla, has been showing signs of rising risks in the market. The funding requirement through CFS has dropped by 16.9%. Logically, it would mean lower CFS rates, however, in a totally opposite trend, CFS rates have jumped to 7 year high level of 62.97% on Thursday on a trading of Rs260mn only. The higher rates signals liquidity crunch and investors fear of defaults after the lifting of floor.

Money doesn't create man but it is the man who created money.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #4 on: October 20, 2008, 11:24:35 AM »
Outlook for the Future
Until the floor is removed, we do not expect any major activity in the market. We expect that in the coming
week, investors will be eyeing 1) the implications of Friday’s action taken by the Central Bank to support the
liquidity crisis; 2) market stabilization measures by SECP & Ministry of Finance before floor removal; 3) any
changes in the currency market and; 4) any announcement of bilateral or multilateral flows for Pakistan.
Depending on the measures taken before trading returns to normal the market will, in our opinion, continue
its slide once the floor is removed with the bulk of the pressure expected from foreign investors. We continue
to prefer stocks that are immune to currency and domestic demand destruction. Within the E&P sector, PPL
having the highest share of gas in topline remains our top pick as this makes it less sensitive to sliding oil
prices. In IPPs, Hubco is our preferred pick. While we are currently Neutral on Kapco, it remains a defensive
play as it offers the highest dividend yield in our universe. Declining oil prices and last weeks announcement
of a 14% cut in furnace oil prices should start to bear fruit for the IPPs in coming months, lowering
receivables pressure. In the same vein of defensive stocks, we reiterate our liking for FFC as one of our top
picks. While we remain on cautious on banks, UBL and NBP are our preferred plays in the sector. We
continue to reiterate underweight on autos, cement and textile sectors

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #5 on: October 20, 2008, 12:49:42 PM »
ADR of 70% to affect private commercial banks

 

October 20, 2008 (JS Research)

 

 

In addition to  the decision to reduce CRR by 200bps and exempt 1 year & above time deposits from SLR requirement, State Bank of Pakistan (SBP) has decided to prescribe a maximum Advances to Deposit Ratio (ADR) of 70%. The deadline to achieve this is Mar 31, 2009. This measure, we believe, is meant to ensure a prudent liquidity profile of the system and would affect all banks with ADR in excess of 70%.

 

ADR right now is 75%

According to SBP quarterly report Mar 2008, all scheduled banks have an average ADR ratio of 72%. Public sector banks have ADR of 66%, foreign banks 67% while local private banks have an ADR of 72% as of Mar 31, 2008. As one can evaluate from the accompanied table, amongst large banks, HBL, UBL and MCB have more than 70% ADR. Based on Oct 4, 2008 numbers, sector ADR has reached 75% from 69% at Dec end 2007.

 

Credit growth to further slowdown to 8% in 2008

Given the current economic scenario, deposit growth is likely to remain low and we expect a 7% growth in banking sector deposits in 2008 thus forcing private banks to reduce the quantum of new loans in order to reach the desired ADR mark.

 

We are revising our advances growth assumption from 12% to 8% in 2008. This would help in achieving the target ADR level. Last 5 year (2003-07) advances average growth (CAGR) was 22% and that is now sharply down inline with slowdown in overall economy.

 


Siddiqsons Tin Plate shares buy back disapproved

According to a notice issued at the KSE, shareholders of Siddiqsons Tin Plate Limited have disapproved the shares Buy-Back scheme in the AGM held on Thursday October 16th, 2008. The management of the company was trying to seek shareholder’s approval to Buy-back 7.85mn shares at a price of Rs15.32 per share aggregating to Rs120.3mn.   

 

Searle Pakistan specie dividend approved

In the AGM held on October 16th, 2008, shareholder’s of Searle Pakistan have approved specie dividend distribution of shares of IBL Healthcare (Pvt) Ltd (IBL-HC), a wholly owned subsidiary of Searle. The company intends to distribute 10mn shares of face value Rs10 each of IBL-HC in the ratio of 37.548 shares for every 100 shares held i.e. 37.548%.
« Last Edit: October 20, 2008, 06:52:47 PM by $(\/)@®T T®@D3® »
Money doesn't create man but it is the man who created money.

um@ir

  • Guest
Re: Reports of various brokerage houses
« Reply #6 on: October 20, 2008, 12:50:39 PM »
BMA Today - 20 October, 2008


SBP Provides Further Relief

On October 17, 2008, the Governor, State Bank of Pakistan (SBP) announced
reduction in the Cash Reserve Requirement (CRR) by 200bps in addition to exemption
of time deposits of one year and above from the Statutory Liquidity Requirement (SLR).
This directive is effective immediately and is aimed at easing liquidity in the local
banking system.
The announcement comes at the heels of a previous cut on October 8 where the CRR
was also cut by 200bps to 7% in two phases; from the then prevailing 9% to 8%
effective October 11 and from 8% to 7% effective November 15. With the new directive,
CRR is currently sitting at 6% and will be further reduced to 5% by November 15.
SBP has reiterated that the cuts are short term measures and does not signal a change
in the regulator’s tight monetary stance.
Additional cut to boost liquidity by a further PKR66bn
When the final reduction (November 15) takes effect, liquidity in the banking system will
have been eased to the tune of approximately PKR132bn (CRR impact alone).
Deposits of the banking system as of October 4, 2008 stood at PKR3,764bn of which
approximately 11% constitute one year and above maturity (excluded from CRR).
Deposits of one year and above exempt from SLR
Deposits of one year and above maturity have also been fully exempted from SLR.
This will help inject approximately PKR82bn, bringing the injection to a grand total of
PKR214bn as a result of all the recent central bank measures. SLR on deposits of
maturity one year or less remains at 19%.
ADR should be maintained at 70%
The Governor has also asked banks to maintain a maximum advance to deposit ratio
(ADR) of 70%. However, depleting deposits and excessive government borrowing have
pushed banking system ADR to uncomfortably high levels. ADR was sitting at 76.5%
on October 4, 2008. While most of the banks in the BMA Universe are comfortable with
respect to their ADRs, several small and some mid-sized banks were adversely
affected by the liquidity crunch, leading to an inability to manage their asset-liability
mismatch. Nevertheless, we believe banks will have to increase their deposits to bring
ADRs down, hence adversely affecting NIMs. SBP has issued a March 31, 2009
deadline for compliance with this regulation.

We had mentioned previously (Please refer to our Grapevine dated Thursday, October
09, 2008) that further measures were required by the SBP to assuage investor
confidence which had recently grown shaky and begun to question the solvency of the
banking system, although local banks have been unaffected by the global financial
crisis. The SBP measures are a welcome move and should help provide some muchneeded
relief to the sector.

MEBL: 3QCY08E Result Preview

MEBL is due to post its 9MCY08E results today, we expect the bank to post a PAT of
PKR626mn (EPS PKR1.37) compared to a PAT of PKR653mn (EPS PKR1.54) during
the corresponding period of last year. For 3QCY08E we expect the bank to post a PAT
of PKR183mn (EPS PKR0.40) compared to a PAT of PKR223mn (EPS PKR0.59)
during the same period of last year reflecting a decline of 32.0% on a YoY basis.
During 3QCY08E, deposits of the banking industry witnessed attrition to the tune of
1.3% QoQ and this along with a high ADR resulted in a liquidity crunch. Nevertheless,
the top line of the bank is expected to grow by approximately 39.5% YoY during
98CY08E. However, high administrative expense, considerably lower other income and
comparatively higher provisioning YoY will likely result in a decline in earnings.
MEBL is currently trading at a CY08E PBR of 1.7x versus the sector average of 1.2x.
Based on yesterday’s closing price of PKR27, the scrip provides an upside potential of
41% to our fair value of PKR38.

ACPL: 1QFY09E Result Preview
ACPL is expected to post its 1QFY09 result today where we expect the company to
post a PAT of PKR103.8mn (EPS PKR1.44) versus a PAT of PKR88mn (EPS
PKR1.22) for the same period last year, reflecting growth of 17.9% YoY. The growth in
profitability comes in the wake of stronger sales volumes and higher retention prices.
We expect gross margins to remain under pressure at 16.5% compared to the FY08
average of 22.1%. Even though coal prices have come off by 32.6% from their high of
USD176.5/tonne, PKR depreciation has offset the decline in prices. Furthermore,
cement manufacturers continue to face pressure in light of the reduced pricing power
stemming from a slowdown in demand

NRL: 1QFY09E Result Preview

NRL is expected to announce its 1QFY09E results today. We expect the company to
post a PAT of PKR116mn (EPS PKR1.45) for the period compared to a PAT of
PKR535mn (EPS PKR 6.70) during the same period last year, a substantial decline of
78.4%. We do not expect the company to announce a dividend.
A number of factors have adversely affected margins and profitability. Plummeting oil
prices have put pressure on margins and caused substantial inventory losses. Change
in price mechanism for Mogas and reduction in custom duty for HSD have also put
pressure on profits, the full impact of which will be seen in future quarters. Additionally,
we also expect the company to book exchange losses in 1QFY09E as it did in 4QFY08
on account of PKR depreciation.
We maintain our MARKETWEIGHT stance on the refinery sector. At current prices the
stock has an upside of 51.7% based on our fair value of PKR267.

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #7 on: October 21, 2008, 01:00:32 PM »
1QFY09 earning previews of cement companies       

The financial results season for the period ended Sept 30, 2008, of the companies listed at KSE has started. In this regard, we are presenting the pre-result coverage on our covered cement sector stocks in today’s Morning Buzz. In the opening quarter of FY09, the local cement companies are likely to depict a decent recovery in gross margins on the back of higher local cement prices and increased export revenues due to notable devaluation in Pak rupee against dollar.   
DGKC to depict loss after tax of PRs12mn in 1QFY09
DGKC’s bottom line for the first quarter of FY09 is expected to post a loss of PRs12mn (EPS PRs-0.05) versus profit of PRs268mn (EPS PRs1.06) in 1QFY08. The anticipated negative bottom-line is attributable to higher production cost, exchange losses (due to massive rupee devaluation) and increased financial charges. During the period, cement dispatches of the company remained flat at 0.93mn tons. Sales revenues of the company are expected to depict 77% growth at PRs3.95bn owing to 77% increase in retention levels. On the other hand, increase in fuel charges is anticipated to lift the per ton production cost significantly by 68%. Therefore, the cost of sales is likely to depict 68% hike at PRs3.12bn. The impact of increased cement prices is anticipated to appear in 1QFY09 margins that said the gross margin of the company is likely to recover by 4pps to 21%. However, 509%, 958% and 11% respective increments in operating expenses, other charges and financial expenses are expected to diminish the impact of increased cement prices on bottom-line. Resultantly, the operating margins of the company are expected to remain at 10% while net margins to remain meaningless for 1QFY09.
LUCK: 25% bottom-line growth with EPS of PRs2.82 likely
Lucky Cement is likely to post a bottom-line growth of 25%. Our earnings expectation for 1QFY09 is PRs910mn (EPS: PRs2.82) as against PRs731mn (EPS PRs2.26) in the corresponding period of last year. The sales revenue of the company is projected to increase by 33% to PRs4.84bn over PRs3.65bn, previously. This mainly is to ensue from better retention levels during the period. The cost of sales for the quarter is likely to grow by 22% at PRs3.25bn. The increased cement prices are anticipated to offset the higher per ton cost of the company. Therefore, the gross margin is likely to up by 6pps, thereby, resulting in 60% growth in the gross profit during the said period. On the other hand, the financial charges of the company are anticipated to be 42% lower at PRs90mn over the same period of previous year. 
FCCL: Earnings to grow 5 times at PRs308mn
Fauji Cement’s earnings for the 1QFY08 are expected to register notable recovery during 1QFY09 at PRs308mn (EPS PRs0.44) versus PRs63mn (EPS PRs0.09) in 1QFY08. The growth in profitability is solely attributable to 67% higher retention prices during the period. The total dispatches of the company have registered a decline of 10% mainly because of lower domestic sales. The domestic volumes of the company declined by 23% to 193k tons while export dispatches were 44% higher at 87k tons over the same period last year. Sales revenues for 1QFY09 are expected to depict 51% increase at PRs1,273mn as against revenue of PRs845mn in 1QFY08. Gross margins are likely to widen by 7pps owing to better retention levels that are anticipated to cover increased production cost to some extent. Higher export sales are likely to increase the selling & distribution expenses of the company by 7 times at PRs64mn during the period under-review. Furthermore, 4% lower financial charges are also expected to bode positive for bottom-line growth. Resultantly, the net margins of the company are anticipated at 24% levels as against 7% in the previous quarter of last year.
Money doesn't create man but it is the man who created money.

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #8 on: October 22, 2008, 12:08:48 PM »
ICI: ‘Buy’ at Rs90

 

October 22, 2008 (JS Research)

 



 

ICI’s stock price has declined from its 2008 peak level of Rs212.50 per share to current Rs126.99 per share resulting in a negative return of 39% (adjusted for dividends) for the investors. The stock is currently trading at 2009F PE of 8x, which is at a discount of 26% from 5 yr average PE of 10.8x. However, with our expectation of market reaching its worst case PE of 5.0x, we advise investors to “Buy’ ICI when price comes close to Rs90 after lifting of the price floor.

 

Soda Ash: Main revenue driver going forward

With 65k tons soda ash expansion coming online by June 2009, we expect soda ash business to be the main revenue driver going forward. At present, ICI holds 66-68% of the market share while we expect post expansion market share to be over 80%. Though we have assumed a volumetric sales CAGR of 7.4% over 2008-11 (3.7% 2004-07), gross margins (excluding depreciation) are expected to remain at 35%. We believe segment’s operating profit would grow at a CAGR of 9% over 2008-11.

 

Economic slowdown to impact paints business

Historically, paints segment has been the main driver for the company’s profitability with the segment’s operating profit CAGR of 21% over 2004-07. This growth was on the back of robust increase in construction activities as well as auto production. ICI being the sole supplier to two auto giants Pak Suzuki and Indus Motor, benefited from the auto sector boom. Going forward, however, inflationary pressures in the economy are expected to significantly hamper auto sales as well as construction activities.

 

On the positive front, we believe Akzo’s expertise in decorative paints and chemical business should allow ICI to expand its product portfolio and increase market share going forward. We expect operating profit CAGR of 13% in 2008-11.

 

PSF margins under pressure

Since PTA and MEG are crude oil derivates, their prices usually follow the oil price trend. Average PTA prices jumped from around US$845 per ton in Jan 2008 to US$1,077 per ton in Sep 2008. MEG prices however, due to their own demand supply dynamics, declined from US$1,590 per ton to US$1,010 per ton in the same period. Yet, rupee depreciation has negated the favorable impact of MEG price decline as we saw PSF margins decline from 9% in 1Q2008 to 7.4% in 2Q2008.

 

As far as volumes are concerned, we saw good growth in 2007 due to Dewan’s plant shutdown. Till now the plant is not operational while government is also expected to miss cotton target of 14mn bales for FY09 allowing ICI to keep their utilization levels high in 2008. We expect operating profit CAGR of only 1% during 2008-11.

 

9M2008 EPS expected at Rs10.7-10.9

ICI will be announcing its 9 months results on Oct 23, 2008. We expect the company to post EPS in the range of Rs10.7-10.9 (earnings of around Rs1.5bn) against Rs8.5 (earnings of Rs1.2bn) last year, a growth of around 28%. This is mainly attributable to exceptional performance in the soda ash segment where we expect operating profits to increase by 34%. PSF segment is also expected to do well primarily owing to 5% rise in volumetric sales as they captured market share of Dewan Salman. PSF’s topline is expected to go up 40% in 9M2008.
Money doesn't create man but it is the man who created money.

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #9 on: October 22, 2008, 01:24:40 PM »
PPL: 1QFY09 earnings preview       
PPL would be the first E&P firm at local bourses to declare its annual 1QFY09 results on Oct 21, 2008. Amongst three listed E&Ps, the earnings growth will be highest in case of PPL. Discussed below is our 1QFY09 earnings projection for the company.
1QFY09 EPS of PRs8.6 (diluted) likely - a growth of 49%
PPL’s bottom-line in 1QFY09 is expected to show a growth of 49% YoY. Our earnings projection for the opening quarter of FY09 is PRs7.15bn (diluted EPS PRs8.6) versus that of PRs4.81bn (diluted EPS PRs5.8) in the corresponding period of the last year. On a sequential quarter basis (4QFY08), this would be an increase of 51%. In line with past trend, no payout is expected with the first quarter results.
Higher wellhead prices behind exuberant earnings growth
Amongst the listed E&Ps, PPL is a gas-prone company as it has the highest share of gas sales in its revenue pie. In past, PPL had benefited from the phased increase in Sui & Kandhkot prices where the last such revision was made effective Jan 2007. Given the fact that these two fields do not carry the US$36/barrel ceiling, the prices of both fields move in tandem with the change in crude oil price. In addition, PPL’s other major fields Sawan and Miano are also exempted from this US$36/barrel cap.
The wellhead prices of these non-capped crude oil linked fields witnessed hefty jump of 17-30% HoH. The most notable change was in the price of Sui field (PPL’s 100% stake). As per the announcement, the price of Sui field has been increased by 30% to PRs139.84/mmbtu (US$2.05/mmbtu) from sequential half year (Jan-Jun 2008) level of PRs107.47/mmbtu (US$1.73/mmbtu). Besides better crude averages, currency depreciation was responsible for this increase in Sui and Kandhkot wellhead gas prices. The tariffs for other non-capped crude oil linked fields, Sawan (PPL stake 26.2%) and Miano (PPL’s share 15.2%) were raised by 17% to US$4.166/mmbtu each from US$3.569/mmbtu in 2HFY08.
Top-line growth of 42% likely in 1QFY09
While PPL’s gas production remained flat in 1QFY09 versus corresponding period of last year, its gas revenues are projected to grow by 42% at PRs12.4bn in 1QFY09. The average daily gas production of the company is expected at 890mmcf as against 887mmcf previously. Moreover, oil revenues would also depict an impressive growth of 90% due to 50% higher oil prices compounded by 22% rupee decline. Oil production is also expected to remain flat in 1QFY09 at 4,100bpd. Overall, we project the top-line of the company to expand by 49% in 1QFY09 at PRs15.4bn.
Our ‘Buy’ recommendation on PPL is maintained.
Money doesn't create man but it is the man who created money.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #10 on: October 23, 2008, 11:57:21 AM »
October 23, 2008 (JS Research)

 

(PDF report is also attached)

 

In order to avert a major fall in stocks and to avoid any systematic collapse, the government of Pakistan has announced Rs20bn (US$250mn) market support fund along with government guarantee of Rs30bn (US$370mn) to foreigner portfolio investors. The fund will buy in seven government-owned companies (OGDC, PPL, PSO, SSGC, SNGPL, KAPCO and NBP) and the foreigners will also be given guarantee in these stocks. These stocks have a weight of 30% in the benchmark KSE-100 Index.   

 

We maintain our stance on the market

These measures if implemented properly, timely and efficiently may help avoid any major collapse in the clearing system of the local bourses. However, we still believe that the KSE Index will fall after it resumes normal trading from Oct 27 because many negative developments of last two months have not been priced in.

 

As we mentioned in our Strategy note dated Sep 30, 2008 captioned ‘After lifting of price floor’, if availability of funds, on which government is working since last many weeks, is less than the actual requirement, we could see the index falling 12-25% to 7,000-8,000 levels after the lifting of the price floor mechanism. This was based on historic trends using years 1999 and 2002 as proxies for a worst case scenario. The off-market deals also show that Index is trading between 7,400-7,700 points.

 

Hence, in the short run we advise investors to invest on dips (ideally at 25% or higher discount) as there are more sellers and few buyers in the off-market. At discounted prices we like defensive, high-dividend yielding stocks in which foreigners holding is minimal such as HUBCO, PPL and FFC.

 

Put Option for the foreigners

Due to deteriorating forex situation of the country coupled with bearish spell in global markets, there are fears that foreigners who hold 6% (US$2bn) of capitalization may dump shares from Oct 27. That is why regulators have decided to provide Rs30bn Government of Pakistan guarantee to enable it to write put options on the 7 above mentioned stocks. Technical adviser is being appointed to advise NIT on pricing the put option. The put option facility will be made available to foreign investors invested in the market place as at August 27, 2008.

 

Further details in this regard would be made available in next few days. There are reports that this option would be valid for 1 year only in 7 stocks. According to our estimates, out of total foreign holding of US$2bn, foreign holding in these 7 stocks is approx. US$1bn. What will be the price of the put option and whether it will provide currency hedge? These clarifications are still awaited.

 

Open-end market support fund

This government formed open-end fund of Rs20bn will be managed by state –owned mutual fund, NIT. We believe it will be managed in similar manner as last Pakistan Opportunity Fund was managed. This may help in providing some support to the market at lower levels (may be after a fall of 15-20%).

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #11 on: October 23, 2008, 12:55:24 PM »
Pakistan Fund & government guarantee

 

October 23, 2008 (JS Research)

 


 

In order to avert a major fall in stocks and to avoid any systematic collapse, the government of Pakistan has announced Rs20bn (US$250mn) market support fund along with government guarantee of Rs30bn (US$370mn) to foreigner portfolio investors. The fund will buy in seven government-owned companies (OGDC, PPL, PSO, SSGC, SNGPL, KAPCO and NBP) and the foreigners will also be given guarantee in these stocks. These stocks have a weight of 30% in the benchmark KSE-100 Index. 

 

We maintain our stance on the market

These measures if implemented properly, timely and efficiently may help avoid any major collapse in the clearing system of the local bourses. However, we still believe that the KSE Index will fall after it resumes normal trading from Oct 27 because many negative developments of last two months have not been priced in.

 

As we mentioned in our Strategy note dated Sep 30, 2008 captioned ‘After lifting of price floor’, if availability of funds, on which government is working since last many weeks, is less than the actual requirement, we could see the index falling 12-25% to 7,000-8,000 levels after the lifting of the price floor mechanism. This was based on historic trends using years 1999 and 2002 as proxies for a worst case scenario. The off-market deals also show that Index is trading between 7,400-7,700 points.

 

Hence, in the short run we advise investors to invest on dips (ideally at 25% or higher discount) as there are more sellers and few buyers in the off-market. At discounted prices we like defensive, high-dividend yielding stocks in which foreigners holding is minimal such as HUBCO, PPL and FFC.

 

Put Option for the foreigners


Due to deteriorating forex situation of the country coupled with bearish spell in global markets, there are fears that foreigners who hold 6% (US$2bn) of capitalization may dump shares from Oct 27. That is why regulators have decided to provide Rs30bn Government of Pakistan guarantee to enable it to write put options on the 7 above mentioned stocks. Technical adviser is being appointed to advise NIT on pricing the put option. The put option facility will be made available to foreign investors invested in the market place as at August 27, 2008.

 

Further details in this regard would be made available in next few days. There are reports that this option would be valid for 1 year only in 7 stocks. According to our estimates, out of total foreign holding of US$2bn, foreign holding in these 7 stocks is approx. US$1bn. What will be the price of the put option and whether it will provide currency hedge? These clarifications are still awaited.

 

Open-end market support fund

This government formed open-end fund of Rs20bn will be managed by state –owned mutual fund, NIT. We believe it will be managed in similar manner as last Pakistan Opportunity Fund was managed. This may help in providing some support to the market at lower levels (may be after a fall of 15-20%).

 

Also in focus

Govt. fixes urea retail prices at Rs635 per bag

According to a news paper report, government has fixed urea retail prices at Rs635 per bag. The prices had went up to as high as Rs1,000 per bag due to hoarding and smuggling by the dealers. Government has taken this measure to ensure urea supply to the farmers at reasonable prices. As far as fertilizer companies are concerned, their will be no impact on their valuations as the ex-factory prices are around Rs635-650 per bag.
Money doesn't create man but it is the man who created money.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #12 on: October 24, 2008, 12:28:20 PM »
Pakistan & Regional Markets’ Dividend Yield


 
October 24, 2008 (JS Research)

 

(PDF report is also attached)

 

Investors in Pakistan, though very nervous and upset, are looking for opportunities to accumulate high dividend paying companies after the expected fall of 15-25% in benchmark KSE100 Index next week. With slowdown in key economic indicators and resultant decline in earnings growth, investors will focus on defensive stocks with decent dividend payout as probability of abnormal increase in profitability is declining.   

 

We are presenting a comparison of Pakistan market dividend yield with seven Asian emerging markets covered under MSCI Asian Emerging Markets.

 

Pakistan’s highest yield but with high T-Bill rate

As evident from the accompanied table, Pakistan offers the highest estimated dividend yield amongst the key emerging markets of Asia at current prices. And with likely fall of 15-25%, the 2009 average dividend yield will reach 10-11%. This will be slightly lower than the 1-year T-Bill yield of close to 13%. This is because the T-bill carries re-investment risk which may not be there in case of stocks. The forward rate of T-Bill also shows that T-Bill yield after few years will not be what it is right now. On the contrary dividend yield few years down the road would increase in line with earnings growth.

 

Relationship between Dividend Yield & T-bill rate

Theoretically, looking at the statistics one can say that Thailand and Taiwan are the most attractive market whereas Indonesia is most expensive. But practically that is not the case. One cannot conclude based on these numbers that market is cheap or pricey. Because there are many other factors that justify a lower dividend yield. Reinvestment risk, as explained before, is one factor. Moreover, future earnings (and dividend growth) may compel investors to buy stocks whose dividend yield is lower than T-bill rate. Lastly, the composition of companies on which the estimated dividend yield is calculated should also be considered. For instance in most of the countries, the major companies are in expansion phase and they do not pay  handsome dividend as they  think

they can retain funds for better returns to shareholders in future.





Also in focus

Tough conditions to accompany IMF package

According to a news report published in the ‘The News’ newspaper, Pakistan would have to meet a set of tough conditions including a 30% cut in budget deficit over the next 4 years if it agrees to IMF’s financial assistance package. The news report states citing an IMF document, according to which, Pakistan would be provided US$9.6bn over three years at a markup of 16.7%, contrary to Mr. Shaukat Tareen’s (Advisor to PM on Finance) statement of around 3-4%. In order to improve the budgetary situation, tax reforms would have to be undertaken with an immediate task of increasing general sales tax collection by Rs50bn.

 

Moreover, a 7% mandatory tax on wheat production and 3.5% on other crops would also be levied while Federal Board of Revenue would submit quarterly report of revenue collection to IMF. IMF and World Bank officials would also oversee preparation of Federal Budget going forward.
« Last Edit: October 27, 2008, 09:35:39 AM by um@ir »

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #13 on: October 24, 2008, 12:50:48 PM »
InvestCap's index target for Jun-09 comes to 10,500 points using the target price approach

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #14 on: October 24, 2008, 01:31:33 PM »


    Pakistan & Regional Markets’ Dividend Yield

     

    October 24, 2008 (JS Research)

     

     

    Investors in Pakistan, though very nervous and upset, are looking for opportunities to accumulate high dividend paying companies after the expected fall of 15-25% in benchmark KSE100 Index next week. With slowdown in key economic indicators and resultant decline in earnings growth, investors will focus on defensive stocks with decent dividend payout as probability of abnormal increase in profitability is declining. 

     

    We are presenting a comparison of Pakistan market dividend yield with seven Asian emerging markets covered under MSCI Asian Emerging Markets.

     

    Pakistan’s highest yield but with high T-Bill rate

    As evident from the accompanied table, Pakistan offers the highest estimated dividend yield amongst the key emerging markets of Asia at current prices. And with likely fall of 15-25%, the 2009 average dividend yield will reach 10-11%. This will be slightly lower than the 1-year T-Bill yield of close to 13%. This is because the T-bill carries re-investment risk which may not be there in case of stocks. The forward rate of T-Bill also shows that T-Bill yield after few years will not be what it is right now. On the contrary dividend yield few years down the road would increase in line with earnings growth.

     

    Relationship between Dividend Yield & T-bill rate

    Theoretically, looking at the statistics one can say that Thailand and Taiwan are the most attractive market whereas Indonesia is most expensive. But practically that is not the case. One cannot conclude based on these numbers that market is cheap or pricey. Because there are many other factors that justify a lower dividend yield. Reinvestment risk, as explained before, is one factor. Moreover, future earnings (and dividend growth) may compel investors to buy stocks whose dividend yield is lower than T-bill rate. Lastly, the composition of companies on which the estimated dividend yield is calculated should also be considered. For instance in most of the countries, the major companies are in expansion phase and they do not pay  handsome dividend as they  think

    they can retain funds for better returns to shareholders in future.

     

     

   

    Tough conditions to accompany IMF package

    According to a news report published in the ‘The News’ newspaper, Pakistan would have to meet a set of tough conditions including a 30% cut in budget deficit over the next 4 years if it agrees to IMF’s financial assistance package. The news report states citing an IMF document, according to which, Pakistan would be provided US$9.6bn over three years at a markup of 16.7%, contrary to Mr. Shaukat Tareen’s (Advisor to PM on Finance) statement of around 3-4%. In order to improve the budgetary situation, tax reforms would have to be undertaken with an immediate task of increasing general sales tax collection by Rs50bn.

     

    Moreover, a 7% mandatory tax on wheat production and 3.5% on other crops would also be levied while Federal Board of Revenue would submit quarterly report of revenue collection to IMF. IMF and World Bank officials would also oversee preparation of Federal Budget going forward.
Money doesn't create man but it is the man who created money.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #15 on: October 25, 2008, 12:01:41 PM »
No change in sentiments despite stock market package

(Pakistan Weekly Review)

 
October 24, 2008 (JS Research)

 

(PDF report is also attached)

 

KSE would finally be trading without a price floor mechanism, come Oct 27, 2008, which has hampered activity in the normal market since its imposition on Aug 27, 2008. Despite announcement of market support package last week, record low volumes continued in the ready market. However, activity was again seen in the off market with stocks traded at 15-20% discount as no price floor is prevailing there.

 

KSE-100 Index fell by 0.01% last week to close at 9,182.88 levels. Average daily volumes in the ready markets were 0.2mn shares (US$0.05mn) with average trading volumes (Mon-Thurs) of 24.2mn shares (US$14.8mn) in the off market.

 

Market-support package

During the outgoing week, to avoid a major decline in stocks after removing the price floor rule, government has formed an open-end fund of Rs20bn (US$250mn) which will be managed by state-owned fund, NIT. The fund will buy in 7 state-owned companies (OGDC, PPL, PSO, SSGC, SNGPL, KAPCO & NBP) having 30% weight in the KSE-100 Index.

 

Regulator will also be providing a government guarantee of Rs30bn (US$370mn) to foreign investors in the shape of put options, for those invested in the market place as at Aug 27, 2008. Reports suggest that this option would be valid for 1 year only in 7 stocks. According to our estimates, foreign holdings in these 7 stocks accounts for approx. US$1bn out of the total foreign holding of US$2bn.

 

12-25% fall likely despite support package

With proper implementation, these measures may help avoid major collapse, however, we still believe KSE Index will fall once normal trading resumes, as many negative developments of the lat two months have not been priced in. We could see the Index falling 12-25% to 7,000-8,000 levels as mentioned in our Strategy note dated Sep 30, 2008 captioned ‘After lifting of price floor’.

um@ir

  • Guest
Re: Reports of various brokerage houses
« Reply #16 on: October 27, 2008, 11:59:57 AM »
BMA Today - 27 october, 2008


E&P: OGDC - 1QFY09E Preview
   OGDC is scheduled to announce its 1QFY09E results today. We expect the company to post an EPS of PKR3.60, representing growth of 25.4% YoY
   We also expect the company to announce a dividend per share of PKR2.25-2.50
   At present we have a BUY call on the scrip with a fair value of PKR133 and potential upside of 40.9%

Banks: UBL & BAFL - 9MCY08E Result Previews
   UBL and BAFL are expected to post their 9MCY08E results today. We expect UBL to post an EPS of PKR8.07 while BAFL is expected to post an EPS of PKR3.27
   Top line growth is expected owing to re-pricing of assets though bottom line growth is limited due to an increase in provisioning charges
   We expect UBL and BAFL to earn EPS of PKR2.54 and PKR0.99 respectively, during 3QCY08E

Textile: NML - 1QFY09E Result Preview
   We expect NML to post 1QFY09E EPS of PKR2.17, reflecting a 28.1% YoY decline
   The company is expected to benefit from the sliding PKR though it is likely to be offset by increasing costs
   We have a fair value of PKR82 on the scrip and it provides potential upside of 75.6%

Cement: LUCK - 1QFY09E Result Preview
   Lucky Cement Limited (LUCK) is expected to post its 1QFY09E result today. We expect the company to post an EPS of PKR2.04 for the period compared to an EPS of PKR2.26 for the same period last year
   Export sales showed growth of 7.7% YoY while local sales posted a marked decline of 21.6%. Generally, cement sales (local and export) remained strong in the south zone with the weakness stemming from the north zone
   Although we have an UNDERWEIGHT stance on the sector, LUCK is a preferred pick. Being a larger manufacturer the company enjoys economies of scale and its export orientation provides it with some protection from the local slowdown

Fertilizer: FFBL - 9MCY08E Result Preview
   Fauji Fertilizer Bin Qasim Limited (FFBL) is due to announce its 9MCY08E result today. We expect the company to post an EPS of PKR1.17 compared to an EPS of PKR1.65 for the same period last year
   For 3QCY08E, the company is expected to post an EPS of PKR0.41 versus an EPS PKR1.08 for the same period last year
   Low DAP sales have dragged down FFBL’s profitabilty. As a result we expect a 10.6% decline for full year CY08E in FFBL’s bottom line

Offline $(\/)@®T T®@D3®

  • Junior Member
  • **
  • Posts: 103
  • Thanks Received: 0
    • View Profile
Re: Reports of various brokerage houses
« Reply #17 on: October 28, 2008, 01:31:55 PM »
Morning Buzz -  October 28,  2008

Earning previews: Engro, FFC and PTCL       
Discussed below are our earnings expectations for three key stocks at KSE. These include two fertilizer scrips, Engro & FFC and the telecom giant, PTCL.
Engro: 9M2008 earnings to depict 42% growth at PRs2,267mn (EPS PRs10.65)
The company’s board is scheduled to meet today to announce the 9M2008 financials. We anticipate Engro Chemical’s earnings for the period at PRs2,267mn (EPS: PRs10.65), 42% higher as against PRs1,593mn (EPS: PRs7.48) during the previous year. On quarterly basis, the company is expected to depict 45% growth in its bottom-line for 3Q2008 at PRs711mn (EPS: PRs3.34) as against PRs490mn (EPS: PRs2.30) during the same quarter last year. The profitability growth of the company is attributable to the revival in the urea offtake coupled with higher prices. Revenues for the period are expected to depicted 9% growth while gross margins are anticipated at 36% - an improvement of 12pps. Last year, during the same period, gross margins of the company were lower due to notable decline in sales of own manufactured fertilizers and higher revenue contribution from the purchased fertilizers. The company has produced (according to NFDC) approx. 740k tons of Urea during 9M2008, 7% higher than last year. On the other hand, sales of phosphatic fertilizer depicted a decline of 79% at 52k.
FFC: 29% bottom line growth (EPS PRs10.05) for 9M2008
For 9M2008, FFC is expected to post 29% bottom line growth at PRs4.96bn (EPS PRs10.05) as against PRs3.85bn (EPS PRs7.80) during the same period last year. The company’s board is scheduled to meet on Wednesday, October 29, 2008 to consider the financial results for the said period.  Higher profitability during the period is to be the dual impact of revival in the urea offtake during 2008 as well as the higher fertilizer prices. Revenues are expected to depict 25% growth over the same period last year with margins comfortably settling at 42%, almost 3pps higher than that of last year. On segregated basis, during 3Q2008, the bottom line is estimated to depict 14% growth to PRs1.67bn (EPS PRs 3.38) as against PRs1.46bn (EPS PRs 2.97) during the same quarter last year. Quarterly sales revenues are expected to post 9% growth over the same quarter last year with margins expanding by almost 6pps to 41%. The financial result is also expected to accompany a third interim cash dividend of PRs3.0/share, in addition to already announced PRs6.50/share dividend for 1Q2008.
PTCL: 1QFY09 earnings estimated at PRs4.4bn (EPS PRs0.86)
Pakistan Telecommunication Company Limited (PTCL) will announce its 1QFY09 financial results on Thursday, October 30, 2008. The bottom line of the company is expected to depict decent 45% growth over last year with PAT of PRs4.4bn (EPS PRs0.86) as against PRs3.0bn (EPS PRs0.59). Higher operational efficiencies and favorable product chain reshuffling are anticipated to be the notable factors behind encouraging quarterly earnings. Revenues for the quarter are likely to depict 14% growth over last year at PRs16.3bn with domestic and international revenues depicting 3% (estimated) and 25% (estimated) growth. On the other hand, operating cost is expected to remain 2% lower due to operational efficiencies in the wake of VSS. Resultantly, the operating margins of the company along with EBITDA margins (ex-non operating income) is expected to depict 10.5pps and 6.4pps increase at 36% and 55% respectively. However, other income is expected to remain intac
Money doesn't create man but it is the man who created money.

Offline Admin

  • Administrator
  • Senior Member
  • *****
  • Posts: 3915
  • Thanks Received: 15
    • View Profile
Re: Reports of various brokerage houses
« Reply #18 on: November 04, 2008, 11:05:52 AM »
InvestCap's index target for Jun-09 comes to 10,500 points using the target price approach

Withdrawing investment opinion on Pak coverage
???? We are withdrawing investment opinion on our Pakistan coverage due to
continuation of stock price floor introduced on August 27th and uncertainty
surrounding the withdrawal of the same.
???? The stock price floor effectively deters price discovery mechanism at a time when
many indicators have changed for the worse. Given macro challenges, risk to
corporate earnings, near-term potential foreign outflow and higher risk aversion,
our view on the market remains negative.
???? Stock prices are expected to open low when market opens. Should the market
calibrate to its historical trough multiples, we see 40-50% downside.
???? Stakeholders and media reports have discussed various options for bringing
stability to the equity market; we contend the modalities are yet to be thrashed out,
which would require more time.
Withdrawing investment opinion
We are withdrawing investment opinion on our Pakistan coverage (31 stocks) due to continuation
of stock price floor introduced on August 27th and uncertainty surrounding the withdrawal of the
same. The stock price floor effectively deters price discovery mechanism at a time when many
indicators have changed for the worse. Resultantly, stock liquidity in the regular market has
virtually dried out (average traded value of US$7.9mn since Aug 27 relative to 12mth average of
US$369mn). Given macro challenges, risk to corporate earnings, near-term potential foreign
outflow and higher risk aversion, our view on the market remains negative. Stock prices are
expected to open low when market opens. Should the market calibrate to its historical trough
multiples, we see 40-50% downside.
Grey market is active but limitations remain
While the grey market is open for any investors willing to trade shares, we see three limitations (1)
not every investor has the mandate to trade off market (2) settlement risk is high as the stock
exchange does not assume settlement guarantee of such transactions(3) liquidity is limited. Stock
price discounts in the grey market are quoted in the range of 15-20%. For some stocks, which have
high foreign shareholding, the discount is even wider.
Lifting of stock price floor linked to FX flows
In the last two months, the KSE has missed at least three deadlines on removal of price floor.
Interestingly, in the latest development, the KSE board has opted not to give any deadline. We find
the issue ultimately linked with FX flow and reserve build up and believe until the government beefs
up FX reserves (via bilateral flows or an IMF program) and raises its capacity to handle FX outflow,
there is low possibility of lifting the price floor. The earliest the stock price can be removed is likely
to be in the third week of November after the conclusion of President’s Saudi Arabia visit and
Friends of Pakistan Conference due on 17th Nov. To us, stabilization measures have assumed
secondary importance as the country’s FX reserves have dropped to below US$7bn (import cover
of little over 2mths).
Few stabilization measures- but many ifs and buts
Stakeholders and media reports have discussed various options for bringing stability to the equity
market; we contend (1) the modalities are yet to be thrashed out, which would require more time
(2) Recent measures to stabilize the market in Aug 08 proved insufficient. Options widely
discussed include: (1) an equity market support fund with total size of PRs20bn or US$250mn (2) a
put option with total government allocation of PRs500mn to be offered to foreign investors (3)
encouraging banks to restore financing against shares and (4) lowering cost of leveraging. The key
details on put options (type, length, currency) are still fluid.

Tags: