Healthy corporate earnings
The first of the big ticket companies to unveil financial figures for the current reporting season was Fauji Fertiliser Company Limited (the ‘bara’ Fauji, as they call the scrip at the stock market).
The company reported decline in earnings by seven per cent alongside final cash dividend at Rs5 per share. No one grudged earnings shortfall for it was in line with expectations. However, contrary to market consensus forecast of a bonus issue tied to the cash dividend, there was none.
It was able to slightly rock the boat of the stock market for a day. But as investors sulked over the Board’s decision not to spread the capital base thin, they could scarcely help notice that the company had released the audited accounts within a fortnight of the closure of the accounting year.
Sections 230 to 233 of The Companies Ordinance, 1984 relates to the annual general meetings of shareholders and presentation of accounts, by virtue of which companies were earlier on required to announce audited numbers within six months of the close of the accounting year. That was revised down to four months in the Companies (Amendment) Ordinance, 2002.
Drawing up accounts, approval by the directors and the long drawn out process of statutory audit in many cases in the past took more than six months. “It rendered accounts ‘historic’ in nature and the current swiftness can be attributed to new and faster technology, especially in the audit of accounts”, said Mobeen Ahsan, a chartered accountant.
Investors are eagerly awaiting results of major companies listed on the 33 sectors on the Karachi Stock Exchange. The market holds high hopes for a giant leap in corporate profitability, which most brokers believe is the major reason for the phenomenal rise in share prices at the stock market.
According to analysts at brokerage AKD Securities, profit growth was robust at 24 per cent in 2011 over the earlier year and about 15 per cent higher in 2012, all on the back of strong underlying demand and improved margins. “The Pakistan market has produced a 10 year combined annual growth rate (CAGR) of 20 per cent, making it one of the best asset class in the country”, analysts contend. Brokers point out that the strong growth in profitability has attracted foreign investors into the Pakistan equity market. Overseas investors now hold about 30 per cent of free-float market capitalisation, which is about an all time high.
The next in line to come up with financial numbers during the current reporting season was Engro Foods (EFOODS) which recorded profit after tax (PAT) at Rs2,595 million, representing a whopping 191 per cent increase over the previous commercial year 2011 (CY11’) PAT of Rs891 million. Engro Foods was among the top 10 average daily volume leaders with one year average of three million shares in trade at the KSE in 2012 and also one of the top gainers, outperforming the benchmark index by a wide margin.
Oil and Gas sector with market capitalisation at Rs2.769 billion and the highest weightage of 29.6 per cent in the KSE-100 index is a trend
setter for the market. Oil and Gas Development Company (OGDC) with around Rs160 billion in market capitalisation and 12 per cent index weightage is regarded as an anchor that in most trading days prevents equities from sinking. Refineries is other major sector that investors watch.
Early last week the Attock Group released the financial figures of companies under its fold. Pakistan Oilfields (POL), which holds market capitalisation of over Rs100 billion and 4.62 per cent weightage in the KSE-100 index posted PAT at Rs5.7billion for first half of the year financial year 2012-13 (1HFY13) compared to Rs6.2 billion in the corresponding period of the previous year. This depicted a decline of 8.2 per cent. Attock Petroleum (APL) recorded decline of three per cent in PAT to Rs2.16billion as against earnings of Rs2.22billion in the corresponding period last year
However to the market’s surprise, the company did not announce any cash payout with the result, while there was consensus forecast of a cash payout between Rs17.5 to Rs20 per share.
“We believe, potential acquisition of Chevron petroleum marketing affiliates in both Pakistan and Egypt (for which the company is conducting due diligence) is the reason for the no-payout”, an analyst said. ATRL announced earnings, up by impressive 38 per cent over first half of the previous year. Refineries were thought to have benefited from higher Gross Refinery Margin (GRMs) which an analyst asserted was a key indicator of the sector profitability.
Cement sector adds for Rs45 billion to market capitalisation and has weightage of 4.8 per cent in benchmark. Lucky Cement, the biggest company in the sector unveiled results posting profit for the half year 2012-13 at Rs4.29 billion, up by a grand 42.15 per cent over the PAT at Rs3.02 billion same time last year.
Another sector being closely watched for the upcoming results is the commercial banks, which hold market capitalisation of over Rs200 billion and carries weightage of 22.2 per cent in the index. Banking sector result season would begin this week with MCB scheduled to announce its full-year CY12 financial figures on February 7. On a consolidated basis, analysts expect MCB to post PAT at Rs22.36billion, translating into growth of 16 per cent over the earlier year. In the banking sector, as always, the Big-5– NBP, ABL; HBL; MCB; UBL are expected to be able to command the biggest chunk of profit.
But all eyes are on the textile sector. The sector accounts for 30 per cent of total manufacturing, 50 per cent of Pakistan’s exports and employs 38 per cent of the labour force. Textile sector lists the highest number of stocks on the KSE. It was only in the second half of last year that the textile stocks assumed prominence, where a wave of buying has propelled stock prices to highs not seen in decades. Brokers and analysts attribute it to healthy core business and stable cotton prices. Notwithstanding, the upcoming results of companies in textile sector would show whether the investors’ confidence on the ‘second and third-tier’ textile stocks was justified or all they made was a ‘dash for the trash’.