LAHORE - After the bullish momentum of last two weeks the market took a breather this week with the index staying flat to close at 30,016. Prevailing political impasse, mixed corporate results and wait and see approach of the investors community ahead of State Bank of Pakistan’s (SBP) Monetary Policy Statement (MPS) resulted in the benchmark Index staying in a tight range. However, average traded volumes at the KSE surged by 25%WoW to 164m shares. Other news on domestic shores was underwhelming where (1) Finance Minster hinted at delay in fourth IMF installment, (2) cotton arrivals reached 2.75mn bales till Sep 15, 2014, up 4.73%YoY, (3) CCoP approving OGDC transaction structure and (4) Foreign exchange reserves rising by $110m from last week to $13.525b.

According to experts, week-end profit taking was seen however market maintained its 30,000 points level. Investors also remained on the sidelines ahead of the Monetary policy to be announced on Sep 20th. The KSE index lost 78 points to close at 30,015 points level. Volumes decreased to 150mn shares, while value also declined to USD52mn (value PKR5.22bn). LPCL remained active amid continued investors’ interest.

As per an announcement at the KSE, during the week, International Finance Corporation (IFC) has agreed to invest approximately 15% of total paid-up capital in BAFL, subject to regulatory approval. Furthermore, IFC shall have an option for purchasing additional equity of approx. 5% by Dec 2015. The transaction will take place at the rate of PKR28/sh thus increasing paid-up capital by PKR6.7bn (additional shares of around 238mn). The raised amount will be utilized for the overall growth strategy of the bank wherein the bank has envisaged increasing branch network to cross 700 mark by CY15 while maintaining a payout ratio of 60%. Considering 15% of the paid-up capital issue, experts potentially see an earnings dilution by CY14 onwards while at the same time it will increase current BVPS to PKR24.2/sh from PKR23.5/sh.

According to stock market experts, in 2014, sugar stocks have declined 4% as against KSE-100 return of 14%. They believe this decline seems partly justified as profits of the sector have been on the downward trajectory. since Oct 2013, sugar companies listed at Karachi exchange largely underperformed the benchmark KSE-100 Index as they posted total return of 7.6% versus 32.5% by benchmark index, thus underperforming by a massive 25%. Similarly, when compared to Food Producers segment, sugar companies underperformed by 25%.

In 9MFY14, earnings of profitable sugar companies dropped by 20%. During the period, revenues of profitable companies declined 12% to Rs73bn versus Rs83bn in 9M2013. However, 12% decline in cost of sales resulted in flat gross margins at 12%. On the other hand, bottom-line declined due to 24% increase in finance cost. In 3QFY14, net earnings of profitable sugar producers declined by 20%, mainly due to significant increase in finance cost by 31% to Rs1.7bn.

Stock market experts said that Pakistan’s listed cement sector posted 13% earnings growth in FY14 as net profits grew to Rs42bn versus 37bn in FY13. In FY13, profits grew 93%. While higher cement retention prices fuelled 12% growth in the sector’s net sales, declining finance costs (down 28% in FY14) due to smooth deleveraging and 49% increase in other operating income added more pace to the sector-wide growth in net earnings.

Amongst sample companies, THCCL, BWCL, FCCL and KOHC were star-performers depicting bottom-line growth of 101%, 36%, 27% and 20%, respectively. Market leader LUCK depicted bottom-line growth of 16% while DGKC posted growth of 8%.

As per preliminary figures, urea offtake clocked in at 625k tons (+21% YoY and +28% MoM) in Aug 2014. Against this backdrop, they anticipate urea offtake to settle at 3,670k tons (-1% YoY) for 8M2014. Meanwhile DAP sales clocked in 66% YoY higher and 3% MoM lower at 140k tons in Aug-2014.