The benchmark of Pakistan stock market remained range bound during the week ended 10th June. The market experienced selling pressure before end of the week and closed at 36,941 level, down by 0.76%WoW. Budgetary measures supported agri‐industries, cements contended with an adverse tax levy, while blue chip textile plays rallied on improved expectations of healthier margins brought on by tax relief.
News flow moving the markets included: 1) PTA declared Telenor Pakistan, the only operator that had submitted a bid, as winner of its 850MHz spectrum (3G/4G) auction with base price of US$395 million, 2) PSO inked an agreement with China East Resource Import and Export Corporation (CERIECO), the EPC contractor for SECMC to supply HSD to Thar Mining Project Block II, 3) the GoP borrowed Rs131 billion through an MTB auction, where cut‐off yields, 4) PPL is expected to pay 10% of wellhead gas price as lease extension bonus to the government of Baluchistan for the Sui field with accompanying CAPEX of PkR20bn into exploration activities during the lease period, and 5) Directors of Pakistan LNG Terminals Limited (PLTL) gave approval for a LNG services agreement to set up a second LNG terminal in Karachi.
Top performers at the bourse were: PPL, HCAR, FCCL and 4) PSMC, whereas laggards LOTCHEM, ASTL, AICL and SNGP. Corresponding with Ramadan, average daily turnover fell 36%WoW to 151.9 million shares, with KEL, FCCL, PIBTL and EFERT being the volume leaders.
Next week remains a cliffhanger for markets, as MSCI is set to release the result of Pakistan's inclusion bid for the EM club on 14th June (early morning Wednesday in Pakistan). Uncertainty may prevail in early trading, with the possibility of not graduating giving rise to negative sentiment and stoking fears of a sell‐off. In this backdrop analysts suggest following a cautious stance in value heavy propositions centered on Oil & Gas (PSO, PPL) and Banks (HBL, UBL).
Engro Corporation (ENGRO) recently executed a much‐awaited divestment transaction of Engro Fertilizers (EFERT) as part of its strategic initiatives to diversify its portfolio and meet capital allocation requirements for Engro Thar. ENGRO sold 295 million or 22.2% shares of EFERT by way of a private placement at a strike price of Rs65.47/share, reducing the company's shareholding in EFERT to 56.6% or 753.5 million shares from current holding of 78.8%. The impact of the transaction on ENGRO is material, resulting in a sizable cash inflow of Rs19.3 billion or Rs36.87/share a one‐time gain of Rs31.24/share in its unconsolidated book. Additionally, removal of exemptions on inter corporate dividend for companies availing group relief in Budget FY17 should be disadvantageous to earnings of holding companies like ENGRO, in our view. That said, analysts remain optimistic on the company's outlook over the long term, driven by a well‐diversified business portfolio including high growth potential energy projects (EPTL and SECMC).
AKD Securities has initiated coverage on Cherat Cement (CHCC). The Company has remained in the limelight owing to its 1.3 million tons per annum (tpa) Brownfield cement expansion (expected to be operational by the start of CY17) being the first in line under current expansion cycle. Cherat cement shall likely be a beneficiary of 5‐year tax holiday on its new plant's operations under the government's incentives to promote investment. Additionally, Cherat cement is setting up a 6MW WHR on its new line that will likely help in reducing reliance on grid electricity and contribute in operational after tax savings of Rs1.52/share from FY18 and onwards. These measures are expected to result in attractive 3‐year earnings CAGR of 17%. In light of this, CHCC has posted CYTD/FYTD returns of 29%/33%.