ABL outperformed the overall banking sector
Allied Bank Limited (ABL) has recently disclosed its detailed accounts for the period of FY09. The bank posted the NPAT of PKR 7.1 Billion during the period comparing to PKR 4.1 Billion during the same period last year which translated 73%YoY growth during the reviewing the period while EPS stood at PKR 9.1 during the comparing to PKR 5.2 during the corresponding period last year. Moreover, the bank announced the final cash dividend of PKR 2.00 per share coupled with 10% bonus shares.
NII surged by 41%YoY
The Net Interest Income of the bank surged by 41%YoY to PKR 18.7 Billion comparing to PKR 13.3 Billion during the same period last year. The massive expansion comparing to the peers was in response of 190bps jump in earnings yield to 13.4% during the period as the bank lend its money by adopting the valuable strategy where peers remained risk averse and preferred to invest the excess liquidity in government instruments. On the other hand, the NIMs of the bank rose by 85bpsYoY to 6.1% comparing to an average NIMs expansion of 33bpsYoY for peers.
Non-interest income upped by 20%YoY
The Non interest income of the bank witnessed 20%YoY increase to PKR 6.0 Billion from PKR 5.0 Billion in last year mainly at the back of increase in gains from the sales of securities to PKR 1.1 Billion. Moreover, the dividend income of the bank took a slight dip where income from foreign currency account rose by 231%YoY.
NPLs improved to 6.5%
The NPLs of the bank increased by 18%YoY to PKR 16.3 Billion which allowed the NPL ratio to stand at 6.5% coupled with the coverage ratio which was at 77% during the period. The bank made the total provisions of PKR 4.5 Billion during the period comparing to PKR 3.2 Billion last year which depicted a massive surge of 41%YoY during the reviewing period. As a proportion of total loan book, exposure to textile declined by 200bpsYoY to 18%, share of sugar was down 63bpsYoY to 1.33% and retail exposure remained flat at 2.5%
Looking Forward
ABL owns enough competence to retain strong bottom-line growth going forward. The bank is targeting to raise its exposure to high yielding SME segment. Moreover, the non-interest income of the bank is expected to remain growing mainly at the back of higher capital gains on its equity portfolio where the bank currently has PKR 2 Billion as un-realized gains. I currently maintain ‘hold’ stance on the ABL’s scrip by considering its FY10E earnings at 6.68x where my target price for FY10 is PKR 69.50 per share.
Tuesday, April 6, 2010
Monday, April 5, 2010
Banking Sector Spreads 2MFY10 Review
Average deposit rates slipped by 3bps
The State Bank of Pakistan (SBP) has recently released the figures of lending and deposit rates of the banking during the period of 2MFY10. The average deposit rates slipped by 3bps during the period to 6.07% comparing to the last month of the same year while the average lending rates stood at 13.38% from 13.35% during the period by translating 3bpsMoM increase.
Spreads depicted the increment of 6bps
The interest rate spread depicted the increment of 6bpsMoM to 7.31% comparing to 7.25% during last month. Initially, it was continuously in downtrend since the period of 1MFY09 where it recorded its peak of 7.78%.
Fresh loan spread turned down by 7bps
The interest spread on fresh lending vs. deposits witnessed a decline of 14bps to 6.28% while the interest rates on fresh loans turned down by 7bps to 13.46% along with a cost of fresh deposits who jumped by 7bps to 7.18% during the period. This dwindling trend highlights the risk that maintaining the positive momentum in spreads would be a challenge and spreads could face pressure going forward.
6M KIBOR positioned at 12.19% on average
The average 6-Months KIBOR stood at 12.19% during the period due to the continuation of easing the monetary policy stance by the State Bank of Pakistan (SBP). Initially, the rate touched its peak level of 15.67% during 12MFY09.
Looking Forward
I am expecting the interest rate spreads to remain above the level of 7% in FY10 mainly at the back of recovery of inflation which is likely to keep the interest rates stable in short term to consolidate the lending rates while deposit rates are to remain around the same level mainly at the back of imposition of floor of 5% by SBP on CASA accounts. I am currently maintaining the ‘neutral’ stance on banking sector.
The State Bank of Pakistan (SBP) has recently released the figures of lending and deposit rates of the banking during the period of 2MFY10. The average deposit rates slipped by 3bps during the period to 6.07% comparing to the last month of the same year while the average lending rates stood at 13.38% from 13.35% during the period by translating 3bpsMoM increase.
Spreads depicted the increment of 6bps
The interest rate spread depicted the increment of 6bpsMoM to 7.31% comparing to 7.25% during last month. Initially, it was continuously in downtrend since the period of 1MFY09 where it recorded its peak of 7.78%.
Fresh loan spread turned down by 7bps
The interest spread on fresh lending vs. deposits witnessed a decline of 14bps to 6.28% while the interest rates on fresh loans turned down by 7bps to 13.46% along with a cost of fresh deposits who jumped by 7bps to 7.18% during the period. This dwindling trend highlights the risk that maintaining the positive momentum in spreads would be a challenge and spreads could face pressure going forward.
6M KIBOR positioned at 12.19% on average
The average 6-Months KIBOR stood at 12.19% during the period due to the continuation of easing the monetary policy stance by the State Bank of Pakistan (SBP). Initially, the rate touched its peak level of 15.67% during 12MFY09.
Looking Forward
I am expecting the interest rate spreads to remain above the level of 7% in FY10 mainly at the back of recovery of inflation which is likely to keep the interest rates stable in short term to consolidate the lending rates while deposit rates are to remain around the same level mainly at the back of imposition of floor of 5% by SBP on CASA accounts. I am currently maintaining the ‘neutral’ stance on banking sector.
Friday, April 2, 2010
Shell FY09 Review
Earnings tremendously boosted during FY09
Shell Pakistan (SHELL) has recently disclosed its result for the period of FY09. The company posted the NPAT of PKR 3.91 Billion during the period comparing to the NLAT of PKR 1.73 Billion during the same period last year where the EPS during the period stood at PKR 37.42 comparing to LPS of PKR 25.20 during the corresponding period last year mainly at the back of higher exchange and inventory losses during last year.
Higher margins squeezed the Cost of Sales
The company made the sale of PKR 156 Billion during the period comparing to PKR 163.15 Billion during the same period last year which translated 4%YoY decrease during the period. Conversely, the cost of sales nose-dived by 9%YoY to PKR 143.10 Billion during the period due to the drastic surge in crude oil as well refined product prices specially the HSD which permitted the company to incur higher inventory gains. Moreover, the gross profit enlarged by 100%YoY to PKR 12.9 Billion resulting higher margins during the period.
Other income surged by 28%YoY
The further support to the outshine performance was given by other income which surged by 28%YoY to PKR 917 Million against PKR 719 Million during the same period last year chiefly due to distribution of higher profits from Pak Arab Pipeline company Limited (PAPCO) to its associated companies.
TFC issuance led lower financial charges
The distribution and administrative expenses of the company upped during the period by 21%YoY to PKR 7.22 Billion comparing to PKR 5.98 Billion during the same period last year while the financial charges of the company turned down by 53%YoY to PKR 1.29 Billion from PKR 2.71 Billion during the same period last year mainly at the back decrease in interest rates. Moreover, the issuance of TFC of worth PKR 85 Billion by the GoP for resolving the circular debt also supported the decrease in financial charges during the period.
Looking Forward
I currently maintain ‘buy’ stance for the SHELL scrip by considering its current trading at FY10E of 7.50x where my target price for FY10 is PKR 390 per share.
Shell Pakistan (SHELL) has recently disclosed its result for the period of FY09. The company posted the NPAT of PKR 3.91 Billion during the period comparing to the NLAT of PKR 1.73 Billion during the same period last year where the EPS during the period stood at PKR 37.42 comparing to LPS of PKR 25.20 during the corresponding period last year mainly at the back of higher exchange and inventory losses during last year.
Higher margins squeezed the Cost of Sales
The company made the sale of PKR 156 Billion during the period comparing to PKR 163.15 Billion during the same period last year which translated 4%YoY decrease during the period. Conversely, the cost of sales nose-dived by 9%YoY to PKR 143.10 Billion during the period due to the drastic surge in crude oil as well refined product prices specially the HSD which permitted the company to incur higher inventory gains. Moreover, the gross profit enlarged by 100%YoY to PKR 12.9 Billion resulting higher margins during the period.
Other income surged by 28%YoY
The further support to the outshine performance was given by other income which surged by 28%YoY to PKR 917 Million against PKR 719 Million during the same period last year chiefly due to distribution of higher profits from Pak Arab Pipeline company Limited (PAPCO) to its associated companies.
TFC issuance led lower financial charges
The distribution and administrative expenses of the company upped during the period by 21%YoY to PKR 7.22 Billion comparing to PKR 5.98 Billion during the same period last year while the financial charges of the company turned down by 53%YoY to PKR 1.29 Billion from PKR 2.71 Billion during the same period last year mainly at the back decrease in interest rates. Moreover, the issuance of TFC of worth PKR 85 Billion by the GoP for resolving the circular debt also supported the decrease in financial charges during the period.
Looking Forward
I currently maintain ‘buy’ stance for the SHELL scrip by considering its current trading at FY10E of 7.50x where my target price for FY10 is PKR 390 per share.
Thursday, April 1, 2010
Fertilizer Sector 2MCY10 Review
Urea Off-take dwindled by 9%YoY
The National Fertilizer Development Centre (NFDC) has recently announced the fertilizer’s updates for the period of 2MCY10. The Urea off-take witnessed a decent decline of 9%YoY to 984k tons comparing to 1,076k tons during the same period last year mainly at the back of 17%YoY and 16%YoY decline in urea imports and local productions respectively during the period. Conversely, the sector owned the 9%YoY higher sales in terms of increase in urea prices which stood at PKR 814 per bag during the period comparing to PKR 747 per bag during the same period last year.
FFBL supported the Urea’s declining trend
During 2MFY10, Fauji Fertilizer Bin Qasim (FFBL) contributed the major decline of 52%YoY in its urea off-take comparing to the same period last year largely attributable to their plant turnaround while ENGRO witnessed the 2%YoY growth where Fauji Fertilizer Company (FFC) remained unchanged during the period.
DAP off-take showed 42%YoY growth
The DAP off-take remained growing during the period by depicting enormous growth of 42%YoY to 162k tons comparing to 114k tons during the same period last year. The DAP prices also showed a extensive increase of 22%YoY to PKR 2,589 per bag primary due to increase in Phos-acid prices which are currently around USD 610/ton comparing to USD 430/ton during 2HCY09.
ENGRO became the major beneficiary of DAP off-take surge
ENGRO showed the outshine performance during the period by posting 157%YoY growth during 2MFY10 to 41k tons comparing to 16k tons during the same period last year. Moreover, the 230%YoY growth was witnessed on cumulative basis by the company after posting sales of 71k tons during the period. FFBL sales remained deceptive during the period as the company posted the sales of 27k tons by posting 32%YoY reduction during the period mainly at the back of plant turnaround.
Looking Forward
I believe that the fertilizer sector will remain prominent due to the GoP support to agriculture sector by allowing the support prices and subsidized agricultural loans etc. Moreover, the current DAP prices have increased to PKR 2,600/bag due to increase in Phosphoric acid prices which may cause shrinkage to the DAP off-take. Currently, I maintain ‘buy’ stance for ENGRO scrip by considering its current trading at FY10E of 6.50x while ‘hold’ for FFC and FFBL by considering their current trading at 7.80x and 9.50x respectively where my target price for ENGRO, FFC, and FFBL is PKR 250, PKR 120 and PKR 38 per share respectively.
The National Fertilizer Development Centre (NFDC) has recently announced the fertilizer’s updates for the period of 2MCY10. The Urea off-take witnessed a decent decline of 9%YoY to 984k tons comparing to 1,076k tons during the same period last year mainly at the back of 17%YoY and 16%YoY decline in urea imports and local productions respectively during the period. Conversely, the sector owned the 9%YoY higher sales in terms of increase in urea prices which stood at PKR 814 per bag during the period comparing to PKR 747 per bag during the same period last year.
FFBL supported the Urea’s declining trend
During 2MFY10, Fauji Fertilizer Bin Qasim (FFBL) contributed the major decline of 52%YoY in its urea off-take comparing to the same period last year largely attributable to their plant turnaround while ENGRO witnessed the 2%YoY growth where Fauji Fertilizer Company (FFC) remained unchanged during the period.
DAP off-take showed 42%YoY growth
The DAP off-take remained growing during the period by depicting enormous growth of 42%YoY to 162k tons comparing to 114k tons during the same period last year. The DAP prices also showed a extensive increase of 22%YoY to PKR 2,589 per bag primary due to increase in Phos-acid prices which are currently around USD 610/ton comparing to USD 430/ton during 2HCY09.
ENGRO became the major beneficiary of DAP off-take surge
ENGRO showed the outshine performance during the period by posting 157%YoY growth during 2MFY10 to 41k tons comparing to 16k tons during the same period last year. Moreover, the 230%YoY growth was witnessed on cumulative basis by the company after posting sales of 71k tons during the period. FFBL sales remained deceptive during the period as the company posted the sales of 27k tons by posting 32%YoY reduction during the period mainly at the back of plant turnaround.
Looking Forward
I believe that the fertilizer sector will remain prominent due to the GoP support to agriculture sector by allowing the support prices and subsidized agricultural loans etc. Moreover, the current DAP prices have increased to PKR 2,600/bag due to increase in Phosphoric acid prices which may cause shrinkage to the DAP off-take. Currently, I maintain ‘buy’ stance for ENGRO scrip by considering its current trading at FY10E of 6.50x while ‘hold’ for FFC and FFBL by considering their current trading at 7.80x and 9.50x respectively where my target price for ENGRO, FFC, and FFBL is PKR 250, PKR 120 and PKR 38 per share respectively.
Monday, August 31, 2009
United Bank Limited (UBL) 1HCY09 Review
NPAT dwindled by 23%YoY
United Bank Limited (UBL) recently declared its financial result for 1HCY09. The 1HCY09 was quite disappointing in terms of profitability as the bank posted its NPAT of PKR 4.29 Billion compare to 5.59 Billion in 1HCY08 which translated a decline of 23%YoY and 32%QoQ; the profit before tax was PKR 6.77 Billion in result of 24%YoY decline; the EPS of the bank also shrunk by 23%YoY to PKR 3.85. UBL did not declare any interim payout for 1HCY09
However, the increase in KIBOR rates and 13% average increase in advances brought the increase in interest income of the bank by 20%YoY to PKR 15.83 Billion compare to PKR 13.22 Billion during the same period last year. The Operating revenue also increased by 17%YoY to PKR 22.61 Billion compare to PKR 19.25 Billion during the same period last.
In spite of the high inflationary pressures (average 1HCY09 CPI at 17.6%), the bank made just 11%YoY increase in its Administrative expenses compare to the same period last year.
Higher NPL significantly impacted the results
Although the Net interest income before provisions grew by 20%YoY but on the other hand the non-performing loans (NPL) made a drastic increase of 153%YoY to PKR 6.42 Billion compare to PKR 2.54 Billion during the same period last year. The advance to deposit ratio (ADR) was 72% during the period.
Net interest income after provisions decreased by 12%YoY compare to the same period last year at PKR 9.41 Billion. Provisions are up by PKR 2.5 Billion to PKR 6.4 Billion this year mainly due to elevated corporate and on-going consumer portfolio provisions. The provisioning charge also includes PKR 484 Million charged on account of impairment loss taken on the equities portfolio.
The Net interest margins (NIMs) remained strong at 6.3% owing to higher interest rates and attractive returns on the investment portfolio. However, NIMs on a year on year basis were impacted by an increase in the cost of deposits as a result of SBP regulation of 5% minimum rate of return on saving deposits which came into effect in June 2008.
Flimsy Macro-economic indicators for whole SectorThe upshots of the global financial crisis remained annoying for Pakistan’s economy which resulted in 2% GDP growth during FY09. The political instability and increased militancy in the northern areas of the country also took its toll on the economy both in terms of direct costs of the fight against extremism as well as affecting investment inflows and investor confidence in the country.
However, the IMF program played an important role to bring some strength in key economic indicators. Foreign exchange reserves which dropped to even lower than USD 7 Billion in November 2008 had now increased to USD 11.4 Billion in June 2009. Current account deficit also lowered by 23% this year at USD 8.5 Billion along with decrease in trade deficit to USD 14 Billion against USD 16.8 Billion compare to last year. Remittances again showed up trend by 21% to USD 6.4 Billion this year which also helped to stabilize the external account.
The chief challenges, however, which should have to be resolved in order to restore the economy growth and investors’ confidence in the Pakistan remain the acute energy crisis and the increased threat of militancy and extremism. Given the government’s current focus on these issues, I stay watchfully hopeful that the economic indicators will continue to improve this year for the overall banking sector.
Looking Ahead
UBL being the most attractive stock within the private commercial banks showed a slightly better incremental stock performance during the subjected period. The stock price of the bank mounted by 13% in CY09 to date compared to 31% rise in the benchmark index on KSE. However, the inclusion of a further 1% decline in the discount rate to 12% in recent monetary policy gave an obvious hope of betterment in near future and I am anticipating that its stock price will reach to PKR 65/share in FY09. I maintain the ‘buy’ stance for the bank.
United Bank Limited (UBL) recently declared its financial result for 1HCY09. The 1HCY09 was quite disappointing in terms of profitability as the bank posted its NPAT of PKR 4.29 Billion compare to 5.59 Billion in 1HCY08 which translated a decline of 23%YoY and 32%QoQ; the profit before tax was PKR 6.77 Billion in result of 24%YoY decline; the EPS of the bank also shrunk by 23%YoY to PKR 3.85. UBL did not declare any interim payout for 1HCY09
However, the increase in KIBOR rates and 13% average increase in advances brought the increase in interest income of the bank by 20%YoY to PKR 15.83 Billion compare to PKR 13.22 Billion during the same period last year. The Operating revenue also increased by 17%YoY to PKR 22.61 Billion compare to PKR 19.25 Billion during the same period last.
In spite of the high inflationary pressures (average 1HCY09 CPI at 17.6%), the bank made just 11%YoY increase in its Administrative expenses compare to the same period last year.
Higher NPL significantly impacted the results
Although the Net interest income before provisions grew by 20%YoY but on the other hand the non-performing loans (NPL) made a drastic increase of 153%YoY to PKR 6.42 Billion compare to PKR 2.54 Billion during the same period last year. The advance to deposit ratio (ADR) was 72% during the period.
Net interest income after provisions decreased by 12%YoY compare to the same period last year at PKR 9.41 Billion. Provisions are up by PKR 2.5 Billion to PKR 6.4 Billion this year mainly due to elevated corporate and on-going consumer portfolio provisions. The provisioning charge also includes PKR 484 Million charged on account of impairment loss taken on the equities portfolio.
The Net interest margins (NIMs) remained strong at 6.3% owing to higher interest rates and attractive returns on the investment portfolio. However, NIMs on a year on year basis were impacted by an increase in the cost of deposits as a result of SBP regulation of 5% minimum rate of return on saving deposits which came into effect in June 2008.
Flimsy Macro-economic indicators for whole SectorThe upshots of the global financial crisis remained annoying for Pakistan’s economy which resulted in 2% GDP growth during FY09. The political instability and increased militancy in the northern areas of the country also took its toll on the economy both in terms of direct costs of the fight against extremism as well as affecting investment inflows and investor confidence in the country.
However, the IMF program played an important role to bring some strength in key economic indicators. Foreign exchange reserves which dropped to even lower than USD 7 Billion in November 2008 had now increased to USD 11.4 Billion in June 2009. Current account deficit also lowered by 23% this year at USD 8.5 Billion along with decrease in trade deficit to USD 14 Billion against USD 16.8 Billion compare to last year. Remittances again showed up trend by 21% to USD 6.4 Billion this year which also helped to stabilize the external account.
The chief challenges, however, which should have to be resolved in order to restore the economy growth and investors’ confidence in the Pakistan remain the acute energy crisis and the increased threat of militancy and extremism. Given the government’s current focus on these issues, I stay watchfully hopeful that the economic indicators will continue to improve this year for the overall banking sector.
Looking Ahead
UBL being the most attractive stock within the private commercial banks showed a slightly better incremental stock performance during the subjected period. The stock price of the bank mounted by 13% in CY09 to date compared to 31% rise in the benchmark index on KSE. However, the inclusion of a further 1% decline in the discount rate to 12% in recent monetary policy gave an obvious hope of betterment in near future and I am anticipating that its stock price will reach to PKR 65/share in FY09. I maintain the ‘buy’ stance for the bank.
Friday, August 21, 2009
National Refinery Limited (NRL) FY09 Review
NPAT dwindled by 74%YoY
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.
On August 19, 2009, the company announced its result for FY09 ending to June 30, 2009. The company faced a sharp decline in profitability for FY09. NPAT for the year shrank by 74% to PKR 1.53 Billion from PKR 6.01 Billion compare to last year whereas the company's earnings per share were at 5-year low in FY09; it reported 74% lower to PKR 19.17 against PKR 75.10 in the same period a year back. The Sales were dropped by 15% to PKR 109.58 Billion compare to the same period last year which also returned in the shape of decline in Cost of Sales by 12%YoY to PKR 104.31 Billion compare to the same period last year. The Gross Profit Margin of the company lowered by 42%YoY to 4.8% in FY09.
Furthermore, the company paid PKR 30.533 Billion on account of trade discount, taxes, duties and levies in FY09 against PKR 16.847 billion in the same account a year back.
Global Oil Prices and PKR-USD Parity lowered the profitability
This drastic decrease in the performance of the company was mainly in result to the global plunge in oil prices of 39% followed by the decrease in PKR-USD parity by 23% during the period.
The average net realized price for the crude oil sold was USD 55.53/bbl, compared to USD 71.29/bbl during the last year whereas the average PKR-USD Parity was PKR 78.56 in FY09 compare to PKR 62.54 during the same period last year.
Lubricants served as the saving grace
The company's petroleum business experienced a throughout cutback in profit during FY09 chiefly in return to massive exchange losses as PKR-USD Parity depreciated by 23% during the period, and in return to the high inventory losses to 39% drop in global crude oil prices.
In an opposite manner, the company’s lubricant business supplied as the saving elegance for its FY09 net results, which would have been highlighted in red otherwise. The company’s margins in lubricant business were outshine in FY09 as the principal cost of production for lubricants which is furnace oil had a dropping trend along with the decrease in crude oil prices. The company has a strong presence in lubricants across the country which allowed benefiting by charging the premium in the market and offset the impact of inventory loss by fall in oil prices.
On the other hand, the average ‘gross refinery margin’ (GRM) were 60%YoY lower in comparison to the GRM of USD 9/bbl during the same period last year.
Dividend payout ratio to a six-year high of 65%
In the face of the gloomy EPS performance in FY09 compare to the same period last year, NRL did not let down its shareholders to get the lower Dividend for the year as the company has strong cash reserves which enabled it to announce the dividend of PKR 12.5/share for FY09.
This takes the company’s dividend payout ratio to a six-year high of 65%, which stayed close to 20% - 30% in the past. This, however, further asserts the view on refineries' reluctance to invest in Euro-II implementation.
Looking ForwardThere are optimistic signs for the company as the global crude oil prices in the market are expected to not to decline sharply and remain in a range of USD 65-70/bbl during 1HCY10. Therefore, on a comfort zone if NRL manages to keep its fuel business margins at 0%, the lubricant business would still be good enough for NRL to post better profits for the next period as lubricant business hedge the impact of crude oil prices on petroleum business. I include the NRL scrip in the buying list.
Moody’s Rating Review
Pakistan’s outlook upgraded to ‘stable’…
Moody’s Investors Service recently upgraded Pakistan's outlook from B3 with ‘negative’ to B3 with ‘stable’. Moody’s cited greater financial assistance from the IMF and subsequent lowering of potential risks from any drop in private capital inflows as the reason for the outlook upgrade. Moody’s rating up gradation was expected due to some improvement on the economic front. However, Pakistan's credit rating is still lower than that for most other economies in the region, where long-term sovereign rating for Hungary and Turkey are Baa1 and Ba3. Considering that Pakistan's broad economic fundamentals are comparable and in some cases even better than these two economies and it is expected for further upward revision in Pakistan's outlook if political risks remain manageable.
Pakistan’s Economy rising….…
Pakistan's economy has been showing considerable signs of recovery. Inflation has declined to 11.2% in July 2009 from its peak of 25.3% in August 2008. Core inflation
has also dropped to 14.0% in July-09 from its peak of 18.9% in Feb-09.ÊCurrent Account Deficit has come down to 5.3% of GDP in FY09 compared to 8.5% in
FY08 while fiscal deficit has slipped from 7.6% of GDP to 4.3% during the same period. Furthermore, compared to FY09, exchange rate has become relatively stable while Pakistan's Forex reserves have increased to $11.8 billion from $9.9 billion in Dec 2008. All of these factors had already been pointing towards a favourable review from international credit rating agencies. Major bank outlook changed...
Moody's Investors Service has changed the outlook on the B3 long-term foreign currency deposit ratings of four Pakistani banks to stable from negative. The banks affected by the rating action include National Bank of Pakistan (B3 Stable/NP/D), Habib Bank Limited (B3 Stable/NP/D), United Bank Limited (B3 Stable/NP/D) and MCB Bank Limited (B3 Stable/NP/D).
What’s in it for us?
Well it is a major positive on the short-term. However efforts are to be made to ensure that the stable outlook is converted to positive outlook in the medium to long term basis. The country needs to focus on the fundamentals of the economy. Twin deficits of the economy have to be brought down to sustainable levels, domestic saving rate has to be increased in order to finance the needed investment, price stability has to be restored and energy shortages have to be eliminated. Investment grading rating is a reflection of country’s economic performance which is not bestowed by some outside forces but by the hard work of our own people.
Moody’s Investors Service recently upgraded Pakistan's outlook from B3 with ‘negative’ to B3 with ‘stable’. Moody’s cited greater financial assistance from the IMF and subsequent lowering of potential risks from any drop in private capital inflows as the reason for the outlook upgrade. Moody’s rating up gradation was expected due to some improvement on the economic front. However, Pakistan's credit rating is still lower than that for most other economies in the region, where long-term sovereign rating for Hungary and Turkey are Baa1 and Ba3. Considering that Pakistan's broad economic fundamentals are comparable and in some cases even better than these two economies and it is expected for further upward revision in Pakistan's outlook if political risks remain manageable.
Pakistan’s Economy rising….…
Pakistan's economy has been showing considerable signs of recovery. Inflation has declined to 11.2% in July 2009 from its peak of 25.3% in August 2008. Core inflation
has also dropped to 14.0% in July-09 from its peak of 18.9% in Feb-09.ÊCurrent Account Deficit has come down to 5.3% of GDP in FY09 compared to 8.5% in
FY08 while fiscal deficit has slipped from 7.6% of GDP to 4.3% during the same period. Furthermore, compared to FY09, exchange rate has become relatively stable while Pakistan's Forex reserves have increased to $11.8 billion from $9.9 billion in Dec 2008. All of these factors had already been pointing towards a favourable review from international credit rating agencies. Major bank outlook changed...
Moody's Investors Service has changed the outlook on the B3 long-term foreign currency deposit ratings of four Pakistani banks to stable from negative. The banks affected by the rating action include National Bank of Pakistan (B3 Stable/NP/D), Habib Bank Limited (B3 Stable/NP/D), United Bank Limited (B3 Stable/NP/D) and MCB Bank Limited (B3 Stable/NP/D).
What’s in it for us?
Well it is a major positive on the short-term. However efforts are to be made to ensure that the stable outlook is converted to positive outlook in the medium to long term basis. The country needs to focus on the fundamentals of the economy. Twin deficits of the economy have to be brought down to sustainable levels, domestic saving rate has to be increased in order to finance the needed investment, price stability has to be restored and energy shortages have to be eliminated. Investment grading rating is a reflection of country’s economic performance which is not bestowed by some outside forces but by the hard work of our own people.
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