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Morning Briefing for December 02, 2011 – Standard Capital

Karachi: Smart investing vs. volume buggers

KSE is marred with low volume spree mainly owing to following issues:

• ‘Real’ investors would not like to come to the exchange since they are afraid over modalities on Capital Gains Tax;

• Members ‘anxiety’ over re‐fixation of minimum net capital bal.; many small members may close down due to their inability to meet minimum requirement;

• Long Ashura weekend;

• Farcical analytics over probable redemption of NIT‐SEF in Jan 2012

Politico‐economic decisions going against investor confidence:

• Fallout over breakdown in US‐Pakistan relationship due to Pakistan’s ‘anger’ on killings of soldiers by NATO;

• The fallout over ‘memo’ case in Supreme Court hearing could keep investors at tenterhooks

• SBP decision to keep discount rate ‘unchanged’ despite trade & industry pleas to bring down interest rates.

Standard Capital has recently came up with Standard Capital’s analysis that Pakistan is attractive given extremely satiating KSE 100 & 30 PE of 8x & 7x respectively wherein many oil and gas sector companies are offering above 30% earnings growth. We continue to trumpet this opinion since Standard Capital sees resurgence of ‘fundamentals’ based buying opportunities once market may take a dip. Standard Capital sees KSE 100 depict room for appreciation mainly on the basis of three variables:

• 15% ‐ 20% earnings growth in key scripts;

• Above 6% dividend yield in defensive as well as growth stocks;

• Continuous expectation of re‐fixing discount rate after every Monetary Policy Statement (MPS) to spur spending and growth since 2012 would mark as culminating year before general elections.

If Standard Capital plots or calculate cash flows of the index based on above variables then the index could reach as high as 14,000 as at June 2012. Having said that Standard Capital believes one side of the investors would continue to be baulked down on above mentioned events that are currently dampening ‘volumes’.

However, smart investors shall wait for opportunities in ‘15% ‐ 20% earnings growth’ scripts. Standard Capital sees market to rebound once Pak – US relations to ‘normalize’ given expediencies on both sides. Standard Capital continues to see foreign markets rebounding due to cuts coming in interest rates.

Standard Capital expects foreigners to ‘re‐enter’ in Standard Capital’s undervalued scripts since they see companies and not countries. Stay tuned in ‘undervalued’ Pakistan Oilfields (POL), Lucky Cement (LUCK), MCB Bank (MCB), Fauji Bin Qasim (FFBL), Engro Corp. (ENGRO) etc.

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