Pakistan Pulse: (July-03-2013) Which stocks performed well in 1H2013 (PDF Attached) (July 3, 2013) Propped up by the historic elections and reduction of 500bps in the policy interest rate in last 24 months, Pakistan equity market provided return of 24% in 1H2013. Based on analysis of stocks in Topline Universe we found out that cement companies remained top performers during the aforementioned period where all 3 cement companies in Topline universe outperforming the benchmark index. On the contrary, Fertilizer shares remained under stress while E&P stocks return also failed to match the benchmark index gain. Fauji Cement: Top performer Outgoing 1H2013 was good for Pakistan Cements, as falling coal prices coupled with declining interest rate environment spurred the profitability of the sector. Furthermore, being the election year, domestic demand of the commodity also improved (up 4% to 24.9mn tons in FY13). These developments have kept investors interested in the cement shares. Amongst Topline universe companies, FCCL with a gain of 103% has been the top yielding stock, outperforming the benchmark KSE100 index by 4.0x. High operating leverage coupled with new capacity coming online at the right time has been the key behind FCCL’s performance in addition to the overall favorable change in sector dynamic. In our detailed report titled ‘FCCL: Expansion at the right time’ released on April 8, 2013, we flagged FCCL as the best amongst cement companies. The stock has appreciated by 54% since our report was released. FCCL was followed by DGKC and LUCK, as they provided return of 53% and 38% respectively. As shown in accompanied table. Engro did well but FFC did not Although, local fertilizer sales grew by approx. 18% to 3mn tons in 1H2013, but gas supply and gas price risk has kept investors away from the fertilizer stocks. Further, rapidly diminishing gap between local and imported urea prices has raised questions about the sector’s once famous pricing power. With talks circulating in the media regarding removing the gas (feed) price subsidy on fertilizer and supply of gas to efficient plants, fortune of fertilizer manufacturers have been under stress. With so much uncertainty, stock performance of FFC and FFBL remained dismal with formal being the only negative yielding stock amongst Topline universe while latter providing return of mere 3%. Engro Corp, however, posted a gain of 32% as the company operated its more efficient EnVen plant utilizing gas from the base plant. OGDC and PPL in line with market With gas production down 1% and oil production up by 11% in 1H2013, E&P sector of Pakistan failed to beat the market return, as PPL, OGDC and POL yielded returns of 23%, 21% and 18% respectively. Due to their combined weight of 24% in the index it is always difficult to deviate from the benchmark index performance. Lower than expected earnings kept POL price under pressure while OGDC and PPL moved with the index. Regards Asad I. Siddiqui
Posted on: Wed, 03 Jul 2013 07:01:50 +0000
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