PICIC GROWTH FUND (PGF) - Analysis of Financial Statements (up to H 2001 Financial Year 2010)
OVERVIEW (March 12 2010): BACKGROUND PICIC Asset Management Company Limited (PICIC AMC) is a wholly owned subsidiary of NIB Bank Limited (NIB). NIB is a subsidiary of Fullerton Financial Holdings Limited which is a wholly owned by Temasek Holdings, the investment arm of the Government of Singapore.
THE MARKET DURING H 2001 FINANCIAL YEAR 2010
During the period under review the KSE-100 Index rose by 31.1% from 7,162 to 9,387. The total Index Points Movement (IPM) was 2,225 points. Market capitalization during the period under review rose by 27.6% from Rs 2.12 trillion to Rs 2.70 trillion. Average daily volumes stood at 172.8 million shares during the period under review. Market performance was distinctly split in the two quarters as it rallied significantly, up by 30.5% in 1QFY10 but only recorded a return of 0.4% in 2QFY10. In between, the market made a high of 9,846 on October 15, 2009.
Market improved as each one of the factors that were the cause of market decline in 2008, namely economic stress, political uncertainty and violent security situation somewhat subsided. Out of the three factors, the most significant contributor to the recovery of the market was improved economic conditions.
Discount Rate was reduced to 12.5% and foreign exchange reserves peaked at USD14.8 billion. Reserve augmentation by the IMF was crucial especially as foreign direct investment had dissipated over the past year. Market was also driven by foreign liquidity flows as net inflows during 1QFY10 amounted to USD235mn and USD55mn in 2QFY10. The bullish phase in the rally has mostly been led by commodity-based, yield driven and non-leveraged scrips/sectors.
On a Market capitalization basis the following sectors lead the market with respect to the KSE 100 Index, Oil Exploration & Production +123.4% (63.4% out performance), Fertilizer +96.7% (36.7% out performance) and Power +76.6% (16.6% out performance). Whereas leveraged sectors/scrips such as Banks +60.01 %( 0.01% underperformance) either trailed or remained at par with the market. At half year end the market traded at an average earnings multiple of 8X. Further re-rating of the market up to 10X is plausible particularly so for the non-leveraged sectors/scrips, but for a broad based persistent rally, economic conditions need to improve further.
RECENT RESULTS H 2001 2010:
During the period under review total income stood at Rs 973 million including unrealized gain of Rs 55 million (2009: unrealized loss 3,471 Million) as compared to total loss of Rs 3,142 million in the corresponding period. Realized capital gain during the period stood at Rs 733 million as compared to NIL realized capital gain in the corresponding period. The dividend income during the period stood at Rs 102 million as compared to Rs 298 million in the corresponding period in FY'09. Total expenditure during the period increased to Rs 110 million from Rs 85 million during the corresponding period.
The net profit for the period stood at Rs 863 million including unrealized gain of Rs 55 million as compared to net loss of Rs 3,226 million reported for the corresponding period. This translates into earning per certificate of Rs 3.04 for the period as compared to loss per certificate of Rs 11.38 in the corresponding period. The net assets increased from Rs 6,523 million as on June 30, 2009 to Rs 7,595 million as on December 31, 2009 and accordingly the net asset value per certificate increased from Rs 23.01 per certificate as on June 30, 2009 to Rs 26.79 per certificate as on December 31, 2009.
THE FUND (PGF)PICIC Growth Fund (PGF) is a closed-end equity fund. The objective of the Fund is capital growth of the Certificate Holders for which investments would be made in the best available opportunities, while considering acceptable risk parameters and applicable rules and regulations.
In FY09, 41.94% of the certificates were in the hands of individuals. These amounted to approximately 119 million certificates. 10% of the certificates were owned by the management company, ie PICIC Asset Management Company Limited. 10.73% certificates were owned by the Pakistan Reinsurance Company Limited. Other than that, the largest certificate holders were insurance companies holding 16.44% certificates cumulatively.
The dividend income had shown continous growth from FY02 to FY07. Since then, it has moved along a receding trend. The dividend income was around 190 million in FY02. By FY07 it had reached almost 600 million. In then decreased to around 465 million in FY08, and then further to around 442 million in FY09.
The capital gain showed a continuos improvement until it spiked in FY06. Since then, it has continued to fall. The capital gain for FY02 was around 42 million. In FY06, the capital gain spiked to around 4.2 billion rupees. It then came back, in FY07, to 882 million. It has declined continously touching 184 million in FY08, and ending in a capital loss in FY09 of around 2 billion rupees. These events unfolded due to continuos pressures on the stock markets in the country and abroad.
Capital gain as a percentage of total income has shown a varied performance. Since FY02, it had increased at varying rates until FY06. Thereon, it declined for two years, before rising up again. The ratio increased from 16.85% (in FY02), to 116.85% (FY06) and then decreased, touching -63.31% (FY08) before rising up in FY09 when it was 92.53%. A higher value of this ratio signifies that a higher proportion of the total income is generated through the gain on sale of assets.
Dividend income as a percentage of total income had more or less decreased since FY02 to FY08. It was 75.89% in FY02 which then decreased to 51.58% (FY05). The ratio touched 14.35% and -159.99% in FY07 and 08 rexpectively. The ratio increased to -20.32% in FY09 due to 5.11% (YoY) decrease in dividend income amid a 647% YoY decrease in total income.
The debt to assets ratio had followed an increasing trend from FY02 (ratio being 0.57%) to FY06 (6.53%). The ratio then decreased to FY08, touching 0.96% before increasing again in FY09 to 1.56%. The sharp decline of FY08 was due to a large decrease in total liabilities (-84.48% YoY) amid a smaller decline in total assets (-19.72% YoY). The following period witnessed an increase in the ratio. This happened because in this period, the decrease in total assets (-41.85% YoY) was larger than the decrease in total liabilities (-5.24% YoY).
The debt to equity ratio also followed a similar path. It was 0.57% in FY02, whence it increased continuously to 6.99% in FY06. Thereon, the ratio decreased for two years touching 0.97% in FY08. FY09 witnessed a slight increase in the ratio, bringing it to 1.59%. The sharp decrease from FY07 to FY08 was due to a large decrease in total liabilities (-84.48% YoY) and a small decrease in equity (-16.34% YoY). The subsequent increase of FY09 was due to a reverse phenomenon. The decrease in total liabilities (-5.24% YoY) was dwarfed by the decrease in total equity (-42.20% YoY).
The paid-up capital to equity ratio has shown a varied performance. The ratio decreased from 0.34 in FY02 to 0.19 in FY03. The ratio remained stable till FY05 whence it increased to 0.24 (FY06) before decreasing again to 0.21 (FY07). Thereon the ratio increased to 0.43 (FY09). The increases in the ratio were based on continuing decreases in total equity. Total equity decreased 16.34% and 42.20% respectively in FY08 and 09, therefore the ratio increased.
The equity to assets ratio has remained stable around unity. This is due to a very low debt (as is usual in such funds). Therefore, equity is always nearly equal to the total assets. The lowest this ratio has seen was in FY06 when it touched 0.93.
MARKET VALUE RATIOS
The net assets had continued to rise until FY07. Since then it has fallen considerably. Net assets reached its apex in FY07 almost touching the 13.5 billion mark. Since then, it has fallen to a little over 6.5 billion (FY09). The main proponents of the demise of this figure were large decreases in investments. Investments in AFS fell by 46.97% (YoY) while that in HFT declined by 34.56% (YoY). Also, other assets declined by 63.11% YoY.
The average net asset value (NAV) peaked in FY05 and has since declined. It was 21.02 in FY02, which increased to 55.75 by FY05. The NAV decreased, then stabilized, and then decreased again. It touched 44.78 in FY07, 43.69 in FY08 and ended at 31.41 for FY09. The NAV at the end of FY09 was 23.01.
The earnings per certificate have followed a varied trend. In FY02, it was 2.36. It increased to 8.05 in FY03 and then decreased to 3.56 by FY05. The EPC surged in FY06 touching 15.28 and has since continued to decline. It entered the red in FY08 and in FY09 was -8.26. This meant that it showed a loss of over eight (8) rupees for each certificate issued.
The dividend per share has shown a varying performance. It increased from 2.60 (FY02) to 4.50 (FY04) and then decreased to 1.00 in FY06. The dividend surged in FY07 to 4.25 and then declined to 2.50 in FY08. For FY09, the board of directors announced a 'NIL' dividend. The dividend payout was 13.30% in FY02. It increased in FY04 to 22.02% and then decreased in FY06 to 7.83%. The ratio surged in FY07 touching 26.42% and went on to 30.39% in FY08. Dividend payout for FY09 was zero (0) as no dividend was given for this year. The dividend yield decreased in FY03 from 8.80% (FY02) to 6.70%. It increased slightly in FY03 to 8.33% and then fell to 2.38% by FY06. The yield increased in FY07 (8.39%) before again falling down. The yield touched 6.28% in FY08 and continued its decline. It was 0% for FY09.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi