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Morning Briefing for December 09, 2011 – Standard Capital

Karachi: Beginning of good signs

Pakistan market (both KSE30 & KSE100) remains at a PE of 7x‐8x and hence provide ample opportunity for 2012.

According to Standard Capital sees ‘positives’ outweighing negatives despite recent hiccups in the market in the wake of ‘uncertain’ political future for the beleaguered president.

Market PE has not gone down despite drop in indices level since some of the heavy weights such as OGDC and PTC prices in KSE100 remained at a similar level in the last month or so. Standard Capital sees following reasons for betterment coming in the overall outlook:

Urgency among apex regulator to look into Capital Gains Tax (CGT) issue and broker community’s suggestion to substitute present CVT system with CGT under presumptive tax regime or anything likewise may clear lot of dust. Standard Capital sees volumes coming back into the exchange since many ‘real investors’ could be lured back.

This issue could alone help market attaining new highs given better corporate results plus dividend payment by blue chips may make market one of the highest performing. Standard Capital has already calculated the KSE100 level to 14,000 given 15%‐20% earnings growth of corporate and 6% dividend yield while keeping in mind falling interest rates.

Secondly, Standard Capital sees lot of dust is cleared on political front given president’s weakening political clout and appearance of deafening picture whereby political & economic scene is now getting much clearer for year 2012. Standard Capital sees many investors would be lured back to Pakistan given inception of new political picture. Standard Capital sees good impact on the market.

Engro shutting down Enven due to stoppage of gas from SNGPL
Engro Corp. is getting a raw deal from the government institutions such as Sui Northern Gas Pipeline (SNGPL). SNGPL is inconsistently supplying promised gas to Engro’s new plant thus creating impediments in the way of a genuine investor. The new plant Enven, having significant capacity of 1.1 mn tons won’t be able to bridge urea shortage (in the vicinity of 1.2 mn in the month of Dec 2011).

Standard Capital expects ‘enraged’ Engro resorting to increase in urea bag prices thus indirectly benefitting key urea suppliers viz. Fauji Fertilizer Company (FFC) and a new producer Fatima Fertilizers. Already Standard Capital sees urea is being sold at above Rs 1600 per bag (retail level) at different stations in Punjab. Standard Capital sees some crisis brewing if Engro does increase prices (expected today).

In light of that, the players having dedicated gas supplies such as FFC and FATIMA shall immediately increase prices and take advantage of margins in December supplies.

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