During this
past week ended 4th March 2016 benchmark of Pakistan Stock Exchange PSX‐100
Index posted gains of +3.67%WoW and closed at 32,442 level. Despite some volatility
the impetus was provided by increase in crude oil prices, higher cement dispatches
and renewed interest in banks amid expectations of interest rate bottoming out. However, average daily
traded volumes went down to 135 million shares as compared to 138 million shares
a week earlier. It may be said that the subdued market activity was due to persistent selling by
foreign fund managers, net outflow recorded atUS$1.55 million added to the woes
of investors.
Key developments
during the week included: 1) a Dutch dairy giant announcing intention to acquire up to 51% stake of Engro
Foods, 2) the Ministry of Petroleum & Natural Resources suggesting an
increase in profit margins on petroleum products for OMCs and dealers, 3) Treasury
Bills cut‐off yields remained relatively flat at the latest auction, 4) CPI inflation during February'16 recorded around
4% YoY higher than 3.32%YoY for January'16 owing to the low base effect despite
a sequential decline of
0.25%MoM and 5) SNGPL announced to start supplying gas to the textile industry in Punjab from March'16
on 24/7 basis at a cost of US$6.66/mmbtu instead of US$9.8/mmbtu.
Leaders during
the outgoing week included EFOODS, ENGRO, DAWH LUCK and MLCF. Laggards included
BAFL, SNGP, HMB, LOTCHEM, and ICI. Analysts expect market to remain volatile taking cues from regional markets
developments. In this regard, recovery in international oil prices are expected to
reverse amid oil oversupply/inability of OPEC and Non‐OPEC to coordinate production cuts. Moreover, current scenario
of lower volumes and foreign selling may continue to put pressure on Index
performance. Upcoming monetary policy later this month is widely expected to
maintain status quo as inflation inches up. Any surprise on this front, may put further
downward pressure on banking scrips. EFOODS has come under the spot light after
news of its acquisition went public. Overseas strategic investor has shown
interest in acquiring up to 51% stake in the company cumulatively via an agreement with the major
shareholders (ENGRO in this case, holding 87.1% shares of EFOODS) and a public
offer. While acquisition price is yet to be determined, the direct beneficiary of
the said deal will be ENGRO that is most likely to realize a cash benefit of Rs50
billion assuming acquisition price of Rs147/share. That said, implications on EFOODS are going to be
long‐term in nature where analyst expect management change to yield positive results in the form of: 1) diversifying
product lines and 2) exploring new ventures both locally and globally.
Derived from
January'16 generation data, NEPRA approved a Rs4.11/KwH reduction on account of monthly fuel
adjustment. Total units generated during the month under review were 6.57GwH, making
out a dependable capacity of 8,831MW, lower by 4.5%MoM. Consolidated 7MFY16 generated
units of 59.24GwH push dependable capacity to 11,480MW, higher by 5.2%YoY. The
factors attributable include: 1) GoP delaying program of privatizing DISCO's
where the FESCO transaction is of particular importance, 2) approval of Multi Year Tariff for MEPCO, IESCO, 3)
movement towards financial close for planned coal projects and, 4) challenges
to clearance of circular debt likely, as legislative deliberations on previous clearance of debt (Rs341.9
billion on May'13) remain accusatory. Analysts see another decline in cost of
generation over January'16
figures as Feburary'16 input costs (HSD/FO prices down 12%/3%MoM) were on the
decline.
Country’s largest
oil marketing company, Pakistan State Oil Company PSO is in the limelight yet
again, largely due to its pivotal role in procuring RLNG. While the entity accounted for import of 717,000 tons
of imported RLNG during 1HFY16, at a margin of 1.83% the total profitability of
the OMC raised by Rs500 million. Consultations remain ongoing with OGRA, GoP and network utilities to re‐negotiate this tariff closer to the 4% margin initially sought by PSO (allowing the entity to book an additional Rs689 million in profits). Using
detailed calculations developed by OGRA and PSO management figures for pricing
the product, AKD Securities has highlighted the beneficial impact of the
recently inked long term supply agreement with Qatar. With the initial volumes remaining higher than
previous imports (on spot and DES basis), brokerage house projects PSO to earn Rs940
million (7.8% of FY16F net profit) for the agreed upon 1.5 million tons of LNG
to be imported in the first year of the agreement. Furthermore, a sensitivity analysis of margins between the
OGRA stipulated rate
and PSO's demand leaves room for heightened investor expectations. Despite the nascent stage of regulations governing RLNG imports, brokerage
house opine that PSO's tariff should benefit from the lower RLNG import price
secured by the GoP and the OMC's vital position in the import chain, leaving PSO with greater
bargaining power.
