Report
Ali Asghar Poonawala
EUR 8.83 For Business Accounts Only

PAEL: Jumping the medium-term puddle of mud,(AKD Daily, Oct 31, 2019)

  • Assessing detailed Sept’19 financials, we draw conclusions regarding better than expected (but still weak) profitability where below the line cost curtailment, low cost inventory kept margins firm and debt levels manageable
  • An extended inventory cycle has stressed cash conversion, while monetary tightening depletes the bottom-line making continued profitability over the medium term a tight balance between topline growth and working capital management, in the backdrop of adverse macro and monetary backdrops
  • Out updated estimates reflect these factors, where our base case earnings amount to CY19E EPS of PkR1.21/sh, with 4QCY19E earnings settling at a LPS of PkR0.5/sh, with declining net sales (a factor of weak seasonality) and high finance cost depleting profitability in the final quarter
  • The stock at current levels trades at forward CY20 P/E of 8.6x, a drastic premium to KSE-100 index P/E of 6.1x, which we believe remains unsustainable, until monetary cuts become eminent or topline growth returns (possibly from a pipeline of power distribution orders) cushioning profitability
Underlying
Pak Elektron

Pak Elektron Limited. Pak Elektron Limited is engaged in manufacturing and sale of electrical capital goods and domestic appliances. The Company operates through two segments: Power Division and Appliances Division. The Power Division is engaged in manufacturing and distribution of transformers, switchgears, energy meters, power transformers, construction of grid stations and electrification works. The Appliances Division is engaged in manufacturing, assembling and distribution of refrigerators, deep freezers, air conditioners, microwave ovens, washing machines and other home appliances. It offers services to power utilities, industries, individual customers, housing and commercial projects. Its engineering, procurement and construction (EPC) contracting division delivers custom designed and built high voltage and extra high voltage grid stations, electrification of housing projects and industrial parks. The Company's subsidiary is PEL Marketing (Private) Limited.

Provider
AKD Securities Limited
AKD Securities Limited

AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.

AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.

Analysts
Ali Asghar Poonawala

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