The market is panicking. You shouldn’t…

The Karachi Stock Exchange is notoriously bad at judging the impact of political events on financial outcomes. That means that, for a politically sophisticated observer, market gyrations brought about by mass political protests or other political noise — such as those of this past week — can represent a fantastic buying opportunity…..You may not think this matters to markets and investing, but it does. The KSE is more than just the physical stock exchange and its management. It is the 200 brokerage firms, their thousands of employees and hundreds of thousands of clients all making investment decisions simultaneously that results in a collective view of what they think the future holds. Any market is subject to the delusions and hysteria that grip its participants. In other countries, such delusions and myths tend to be about economic matters. In ours, the political and religious can be quite important as well.

Nonetheless, over the long run, the market is forced to reconcile with reality, because commerce trumps ideology for enough people enough of the time. That means that, while the short run can seem to validate those delusions held by the public, the long run will bear out the investment hypotheses of those who are aware of reality. Let me give you a concrete example. The market appeared to believe that prior to the 2013 election Tahirul Qadri was a big threat to the stability of Pakistan’s political system. Seasoned equity analysts wrote reports speaking of the elections as “if they happen” rather than when they will happen. As Qadri’s pre-rally campaigns reached fever pitch in mid-January 2013, the KSE-100 index dropped 500 points in one day.

Now, if you are the type of conspiracy theory nut who believes that Pakistan’s political system is incapable of evolution, then Qadri seemed like a genuine threat. But if you were sophisticated enough to observe that the system had evolved to the point where enough people had a stake in continuing the political process, you would have been happily buying quality stocks at bargain prices while the suckers were selling. Between Jan 15, 2013, when the Qadri-inspired sell-off happened, and May 11, 2013, when Prime Minister Nawaz Sharif took office, the stock market went up nearly 24pc.

The short-term panic over “Pakistan is about to collapse” would have lost you money. The long-term view of “we’ve got problems, but the largely peaceful transfer of power is about to happen” would have made you money….Whatever your political views may be, the reality is that neither Imran Khan nor Tahirul Qadri have the capacity to bring down the government. And they have neither the capacity nor the interest to affect economic policy. So why would you sell your shares in Hubco or Lucky Cement or Habib Bank? What can the PTI or Tahirul Qadri possibly do to cause a financial loss to these companies? Or really any company listed on the stock exchange?

I suppose one should not blame investors for being scared. Barring five or six people in the entire country, there is absolutely nobody in the media — and absolutely nobody in television — who understands the economy and is able to explain it to ordinary readers or viewers. So perhaps it is not surprising that people have irrational reactions. On Aug 4, the market was down 666 points because of fears of what would happen as a result of political rallies scheduled for later in the month in Islamabad. But remember: for every trade, there is a seller and a buyer. The sellers on that day were motivated by a short-term hysteria that has little basis in reality. The buyers were likely motivated by long-term optimism and fundamental value they see in the Pakistani market. Which side of the trade would you like to be on?…. DAWN

Corporate results: OGDC notches up a profit of Rs.123 billion

Oil and Gas Development Company (OGDC) on Tuesday announced its financial results for fiscal year 2013-14 with a profit of Rs123.914 billion, up 35.7% over the previous year on the back of higher prices for oil and gas. The state-run petroleum exploration giant also announced a final cash dividend of Rs3 per share, taking full-year payout to shareholders to Rs9.25 per share. OGDC’s revenues increased 15% to Rs257 billion despite a 2% drop in its overall petroleum production in oil equivalent terms. Sales went up as a slight increase in oil production, which fetches a higher price, outshone the decline in gas output. “Average oil production stood at 42,000 barrels per day (bpd) in fiscal year 2013-14 against 41,000 bpd in the previous year,” said Vahaj Ahmed, analyst at Topline Securities, citing the data provided by the Pakistan Petroleum Information Services (PPIS). “On the other hand, average gas production was down 3% to 1,181 million cubic feet per day (mmcfd) against previous year’s 1,212 mmcfd.”

During 2013-14, OGDC made just two gas discoveries, which according to initial tests yielded just 7.84 mmcfd of gas and 65 bpd of condensate. The results showed a sharp decrease in exploration and prospecting expenditure to Rs8.722 billion from previous year’s Rs14.97 billion, but analysts said that was because of a large tax adjustment in 2012-13 and write-offs involving dry wells. Setting financial results aside, analysts don’t see much improvement considering the size of the company. Huge profits also mask the liquidity strains suffered by OGDC, which has billions of rupees stuck in inter-corporate circular debt. After it mails the final dividend, OGDC would have paid out Rs40 billion from its profit of Rs123 billion in cash dividends. Industry officials say with major oil and gas fields depleting fast, petroleum exploration firms have to spend more to employ hi-tech machinery to dig deeper to find hydrocarbon reserves. OGDC has 39 operating licences…. EXPRESS TRIBUNE

Pakistan Petroleum Limited makes another gas discovery

Pakistan Petroleum Limited (PPL) on Monday announced the discovery of 42 million standard cubic feet per day (mmscfd) of gas in the Gambat South block, its third and biggest discovery so far in the particular area. The company said the exploration well Sharf X-1 was spud on April 18, 2014, and the final depth of 3,730 meters was reached on July 6, 2014. Along with the gas, condensate with flow of 199 barrels per day has also been discovered, reinforcing the commercial viability of the well, the company said. More significantly, PPL said the expected production from the well could go up to 60 mmscfd. “Two additional zones have been identified that will be tested later, resulting in an expected cumulative production of 60 mmscfd, which translates into approximately 7,400 barrels per day in oil equivalent and foreign exchange saving of $0.75 million per day.”

PPL announced two discoveries in the Gambat South block, which is located in Sanghar District of Sindh, last year within a span of two months. Previous wells Wafiq X-1 and Shahdad X-1 had initially yielded 7.4 mmscfd and 27.8 mmscfd of gas, respectively. “The well is being flowed at different choke sizes to measure the gas flow rates, and the actual flow potential of the well will be determined after completion of the test,” the company said about its latest find.

Government Holdings Private Limited (GHPL) and Asia Resources Oil Limited (AROL) with 25% and 10% working interest are joint venture partners of PPL in the block. PPL, which has a portfolio of 47 exploration blocks, has been aggressively searching for new hydrocarbon finds since last year to compensate for decrease in production from its established fields like Sui….. State-run PPL had earmarked Rs10 billion to be spent on exploration activities during last fiscal year with most of the focus on Gambat South. PPL accounts for 22% of the country’s gas production…..PPL’s six producing fields include Sui, Kandhkot, Adhi, Mazrani, Chachar and Hala, while it has working interest in eight partner-operated fields……EXPRESS TRIBUNE

DIVIDENDS/RESULTS FOR AUGUST 2014

EFOODS :  EPS : 0.43

ABL :   15% CASH – EPS : 6.20

OGDC :  30% CASH – EPS : 28.81

UBL :  25% CASH – EPS : 8.60

MCB : 35% CASH – EPS : 10.54

SHEL : EPS : 6.83

EFERT : EPS : 2.60

APL : 30% CASH – EPS : 52.16

ATRL : EPS :  29.92

NRL : EPS : 12.03

POL : 325% CASH – EPS : 54.48

CHCC : 20% CASH + 68% RIGHTS AT Rs. 25 – EPS : 12.52

ACPL : 30% CASH – EPS : 17.59

Corporate results: Fauji Fertilizer produces Rs.8.2 billion profit

Fauji Fertilizer Company (FFC) has posted a net profit of Rs8.2 billion in the first half of the calendar year 2014 (1H CY14), down 14% compared to Rs9.5 billion in the same period of previous year. Earnings per share (EPS) remained at Rs.6.41 in the 1HCY14 against an EPS of Rs7.46 in the same period of the previous year. Despite the company clocking in its lowest offtake for 16 months in April 2014, the topline of FFC grew year-on-year by 5%.

However, increased cost of sales due to the company’s inability to pass on the incremental costs from augmentation in the Gas Infrastructure Development Cess (GIDC) squeezed the gross margins of the company to 39.8% in 1HCY14, down by 760 percentage points, an AKD research reported on Thursday.In addition, a lower ‘other income’ on the back of an absent dividend from Fauji Fertilizer Bin Qasim Limited (FFBL), alongside higher financial charges resulted in a 14% year-on-year dip in the net earnings of the company.Despite this, FFC declared a cash dividend of Rs3.4 per share during the second quarter of the calendar year 2014 (2QCY14), taking the 1HCY14 dividend payout ratio to nearly a 100%.The revenue levels of the company posted a year-on-year growth of 5%. Other income, however, declined by 5% year-on-year to Rs1.81 billion due to an absence of dividend income from FFBL and slightly higher financial charges…..EXPRESS TRIBUNE

 

FFBL’s earnings go down 56%

Fauji Fertilizer Bin Qasim (FFBL) on Wednesday announced that it earned after-tax profit of Rs802 million in the first half of calendar year 2014 (1HCY14), down 56% compared to Rs1.82 billion in the same period of previous year.Earnings per share remained at Rs0.86 against Rs1.95 in the corresponding period of previous year.

Along with the result, the company’s board of directors announced an interim cash dividend of Rs1 per share.The earnings dropped in the wake of higher gas curtailment, leading to a decline in production and sales of fertiliser, both urea and diammonium phosphate (DAP). The company’s inability to pass on the impact of rising cost on account of increase in gas cess from January this year and depressed primary margins on DAP sales also played their part, the report added. Revenues declined 22% year-on-year to Rs15.75 billion in 1HCY14 largely due to 13% and 17% year-on-year fall in urea and DAP offtake respectively. Urea sales fell to 102,000 tons during 1HCY14 compared to 117,000 tons in 1HCY13. DAP offtake was recorded at 213,000 tons against 256,000 tons last year.

The weak sales were mainly due to higher gas curtailment at the plant averaging 56% (versus 47% in 1HCY13). On quarter-on-quarter basis, revenues dropped to Rs9.71 billion. Finance cost remained on the lower side and fell 36% year-on-year to Rs397 million during 1HCY14. This sharp decline was due to foreign exchange gains of Rs.160 million booked on the company’s dollar-denominated payables on account of rupee’s rise against the dollar by 7% during the period. “Other income stood at Rs230 million, which was lower than our estimate of Rs435 million mainly due to the loss posted by the company’s joint venture Pakistan Maroc Phosphore (PMP),” the report said…….EXPRESS TRIBUNE

HBL posts a healthy result

The after-tax profit of Habib Bank (HBL) for the six-month period ending June 30 increased by 38.6% over the comparable period of the last year, according to the consolidated financial results released by the country’s largest commercial bank in terms of assets. Pre-tax and after-tax profits of HBL clocked up at Rs22.1 billion and Rs14.6 billion, respectively, for the six-month period. Last year, pre-tax and after-tax profits were Rs15.9 billion and Rs10.5 billion, respectively, for the comparable period. The rise of 38.6% in after-tax profit resulted in the earnings per share (EPS) of Rs9.88 for the six-month period ending on June 30 as opposed to the EPS of Rs7.07 recorded last year.

The board of directors of HBL also declared a second interim cash dividend of Rs2.25 per share for the current year ending on December 31. The group’s deposits increased 3.5% to Rs1.45 trillion on June 30 as opposed to Rs1.40 trillion recorded at the end of 2013. The bank delivered an improvement in the deposit mix, with current accounts showing growth of 22.5% to Rs504 billion, thus improving the CASA ratio to 76.7% on June 30. In contrast, the CASA ratio stood at 73% on December 31, 2013. Overall deposit growth remained strong despite a well-managed reduction of high-cost deposits, according to a statement by HBL. Overall, the balance sheet size grew by 1.5% to Rs1.741 trillion…… “The fundamentals of the group remain very strong with growth in balance sheet size, improving core CASA deposits, healthy contribution from both mark-up and non-mark-up income, effective risk management and strong capitalisation,” the statement said….. EXPRESS TRIBUNE

1HCY14: PTCL reaps high profits

Supported by higher revenues from its broadband and cellular business, the Pakistan Telecommunication Company Limited (PTCL) has managed to earn profits of more than Rs.1 billion every month in the first half of 2014, according to its financial results, released on Tuesday. PTCL’s after-tax profit increased to Rs.8.2 billion or Rs.1.62 per share for six months ending June 2014. This translates to an increase of 4.7% compared with Rs7.8 billion or Rs1.51 per share it earned in the corresponding period of 2013.

The financial results were accompanied with an interim cash dividend of Rs.1 per share, ….The broadband giant grossed Rs68.5 billion in sales during the review period, up 4.7% when compared with Rs65.4 billion it grossed in the same period last year.“We attribute an increase in revenues to the surge in cellular and broadband subscribers with major increase in EVO wireless segment,” Topline Securities said in a statement. “Moreover, other income increased 3.4% to Rs2.5 billion while financial charges decreased to Rs1.2 billion in the first half of 2014, down 30%,” it said, adding the company’s cost of sales surged to Rs42.5 billion. Resultantly, gross margins improved by 1% point to 37.3% .

On a quarterly basis, the company’s revenues increased by 5.6% to Rs35.1 billion compared with Rs33.2 billion of April-June quarter of 2013, the Topline report said. “Although, a monthly average of long distance international (LDI) minutes witnessed a decline of around 11%, improvement in revenues is linked to surge in cellular and broadband subscribers.” The report said that 8.6% higher cost of sales offset incremental benefit of revenue growth for the quarter. “As a result, gross profits remained stagnant at Rs12.6 billion while gross margins declined by 2% points to 35.8%.” Higher admin, selling and distribution costs further dented revenue, … admin cost increased by 17% to Rs5 billion while selling and distribution cost increased by 25% to Rs2.4 billion. In the second quarter of 2014, the company posted consolidated earnings of Rs3.9 billion or Rs0.76 per share as compared to Rs4.5 billion or Rs0.89 per share in the same quarter last year, ….. EXPRESS TRIBUNE

DG Khan Cement interested in acquiring Lafarge

DG Khan Cement Company (DGKC) – country’s third largest cement maker – has expressed its interest to acquire 100% stake of Lafarge S.A in Lafarge Pakistan Cement Limited (LPCL) and appointed a manager for the process, according to a company notice sent to the Karachi Stock Exchange (KSE) on Wednesday. LPCL has added 2.4 million tons per annum to its production with its plant located in Chakwal, Punjab. At present, Lafarge S.A has a 73% stake in LPCL. Interestingly, Vision Holdings Middle East (currently holding 47% stake in Pioneer Cement) has also shown interest in the same acquisition.

With one plant in Chakwal, DGKC is the third largest cement manufacturer of Pakistan having the capacity of 4.02 million tons and is running at an optimal capacity of 98%. Last year, the company announced to setup a cement- clinker plant of 2.6 million tons at Hub, Balochistan Pakistan.If DGKC does acquire LPCL, it will become the second largest cement producer of Pakistan (ahead of Bestway Cement). Moreover, it is expected that DGKC may temporarily shelf its plans to set up a plant in the south. Since DG Khan’s interest in expansion plans had recently sent shock waves in All Pakistan Cement Manufacturers Association (APCMA) – a lobbying group for cement sector – this will increase the comfort level of the market on the sustainability of the pricing arrangement within the sector in the medium term, ….

DGKC will have to consider financing the acquisition via debt. We believe DGKC has ample room to leverage its balance sheet with interest bearing debt assets ratio currently at 9% with total interest bearing debt at Rs6.11 billion, read the report.The report predicted the possibility of the company issuing rights shares. “As of March 2014, DGKC’s cash balance stood at Rs451 million, while we expect fiscal year 2014 FY14E-15F average annual cash generation of Rs9-10 billion,” …. EXPRESS TRIBUNE

HUBCO profit down 22% in the third quarter

Hub Power Company (Hubco) on Wednesday announced a 22.6% decline in net profits for the January-March quarter of fiscal 2013-14 as the company had to cut back electricity production because of overhauling work of its units. Profit for the quarter was Rs2.057 billion against Rs2.661 billion it posted in the same period of the previous year. The company did not announce any cash or bonus dividend. In the nine months to March 2014, the profit was down 32.5% to Rs4.993 billion. Topline Securities analyst Vahaj Ahmed said that the company’s load factor for the Karachi plant was 65.7% in the nine months compared with 75.3% in the same period last year. Load factor Narowal plant stood at 82.2%. Load factor is the capacity at which a power plant is operated.“This decline in profits is mainly due to the expenditure on major overhauling of boilers, one of which was down for maintenance,” ….EXPRESS TRIBUNE

Pakistan State Oil’s profit soars 107%

Pakistan State Oil (PSO), the country’s largest oil marketing company, has posted earnings of Rs19.4 billion in the first nine months of financial year 2013-14, up 107% compared to Rs9.4 billion in the corresponding period of previous year. With a muted growth of 4% in volumes, the growth in profit came primarily as a result of higher other income that soared 304% in the July-March period, Shajar Research said in a report on Tuesday. The growth in other income stemmed from realisation of late payment mark-up and profit on Pakistan Investment Bonds issued to the energy sector.

In the third quarter alone, PSO recorded earnings of Rs3.6 billion, an increase of 18% from the same period of previous year, but down 55% from the previous quarter.In the nine-month period, gross sales crossed the trillion mark and stood at Rs1.02 trillion compared to Rs930 billion in the same period of last year, representing a growth of 10%, ….Depreciation of the rupee against the US dollar by 6.5% in the first half was followed by an appreciation of 7% in the third quarter, resulting in a net exchange loss of Rs1.2 billion…. EXPRESS TRIBUNE

 

DIVIDENDS/RESULTS FOR APRIL 2014 – II

PAKT : EPS : 4.87

DAWH : EPS : 2.16

MCB : 30% CASH – EPS : 5.08

FFBL : EPS : 0.05

PTC : EPS : 0.85

FCCL : EPS : 1.49

EFERT : EPS : 1.12

PPL : EPS : 19.32

NPL : 10% CASH – EPS : 6.05

MLCF : EPS : 4.57

SHEL : EPS : 5.97

DGKC : EPS : 9

KOHC : EPS : 15.72

CHCC : EPS : 9.85

LUCK : EPS : 26.58

ABL : EPS : 12.5% CASH – EPS : 2.83

NML : EPS : 16.90

BAFL : EPS : 0.84

OGDC : 22.5% CASH – EPS : 21.14

FFC : 30% CASH – EPS : 3.58

ENGRO : EPS : 3.91

AICL : EPS : 1.80

HUBC : EPS : 4.32

Engro makes a strong comeback

Engro Corp – the biggest conglomerate in Pakistan – has posted a record consolidated profit after tax of Rs8.18 billion for the year ending on December 31, 2013, up 529% compared to a depressed profit after tax of Rs1.3 billion in 2012. Earnings per share (EPS) of the company jumped to Rs16.01 for the year ended December 31, 2013 compared to an EPS of Rs2.61 in 2012. The comp any revenue jumped sharply to Rs155.4 billion in 2013 against Rs125.2 billion in 2012. The record profitability was achieved by a turnaround in its fertiliser business coupled with an impressive performance by Engro Polymer, a healthy contribution by Engro Vopak and EXIMP’s return to profitability.

Engro Fertilizer

During 2013, the company made a profit after tax of Rs5.49 billion compared to a loss of Rs2.93 billion last year. Engro Fertilizer’s revenue for the year was Rs50.12 billion compared to Rs30.62 billion in 2012. Sales of the company’s blended fertilisers (Zarkhez and Engro NP) for the year increased by 21% to 95,000 tons compared to 80,000 during 2012. Pakistan’s overall potash market remained stable at 20,000 tons (nutrient basis) during 2013. The company undertook an Initial Public Offering (IPO) of 75 million ordinary shares in fourth quarter of 2013 (4QCY13).

Engro Foods

2013 was a test of the company’s resilience due to external challenges, coupled with distribution issues, which impacted its volumes and profitability. Engro Foods’ revenues declined from Rs40.16 billion in 2012 to Rs37.89 billion in 2013, while net profits decreased from Rs2.59 billion in 2012 to Rs1.09 billion in 2013.

Engro EXIMP

EXIMP’s revenues during 2013 were Rs32.85 billion compared to a revenue of Rs20.97 billion in 2012. The company’s consolidated profit after tax stood at Rs59 million in 2013 as compared to a loss of Rs426 million in 2012. The profitability of fertiliser and commodity trade was off-set by losses in the rice business despite improvement in operational parameters.

Engro Powergen

Engro Powergen Qadirpur earned a net profit of Rs1.45 billion during 2013 compared with Rs2.1 billion in year 2012. During the year 2013, the Qadirpur Plant demonstrated billable availability of 83.1%. It dispatched a total Net Electrical Output of 1,334 Gigawatt hours to the national grid with a load factor of 71.7% as compared to 93.8% in 2012. Overdues from Pakistan Electric Power Company stood at Rs1.248 billion as on December 31, 2013, against overdues of Rs5.787 billion as on December 31, 2012. Overdue amount payable to Sui Norther Gas Pipeline Company on December 31, 2013 was Rs386 million compared to Rs2.68 billion in 2012.

Polymer and Chemicals

During 2013, the company posted a profit of Rs707 million compared to Rs77 million in 2012. Revenue increased from Rs20.60 billion in 2012 million to Rs24.78 billion in 2013. The company achieved its highest ever production of vinyl chloride and caustic soda during the year.

Vopak

During the year, the company modified its ACN tanks which were unused since 2010 and brought these under use for storage of EDC for Engro Polymer. Actual throughput for the year was 1,135 KT compared to 1,101 KT in 2012. The company’s revenue was Rs2.05 billion in 2013 as compared to Rs2.37 billion in 2012. The profit after tax for 2013 was Rs1.21 billion compared to Rs1.48 billion in 2012.

LNG

Elengy Terminal Pakistan Limited (EPTL), a subsidiary of Engro Corporation Limited, won the government’s tender for Fast Track LNG in November 2013 and is poised to sign the contract this month….. EXPRESS TRIBUNE