Pakistan Strategy: Sectoral Outlook - Portfolio alignment for possible easing,(AKD Daily, Nov 25, 2019)
- With a strong Nov’19TD performance of 10.3/8.6% for KSE-100/All, last three months performance now stands at 24.5/20.2%, underpinned by healthy uptick in volumes (KSE-100/All average volumes up 39/48%MoM) and continued activity in mainboard plays (KSE100 as a portion of total volumes average 68% vs. 72% FYTD)
- Since the September’s sustained recovery, sectoral performance has been led by 52/50/47/46% returns for Pharmaceuticals/Engineering/Cable & Electrical/OMCs while E&Ps/Banks returned 32/15% during the same period, signifying the broad based improvement in risk profile and hardening expectations of monetary easing
- In this backdrop we assess near to medium term profitability and earnings growth outlooks for key sectors Banks, Cements, Fertilizers, E&Ps and Steel, ascertaining whether market’s recent re-rating (KSE-100 P/E at 6.7x) can continue its momentum
- On construction driven materials plays (Cements and Steels), demand enhancement (either by public sector development or organic avenues) is yet to materially enhance profitability, while numerous regulatory hurdles cloud the outlook for Fertilizer space and E&Ps continue to remain attractive on valuations
- Expectations surrounding monetary easing has resulted in the Banking sector underperforming the KSE-100 index by 6.8% in the past 2M. While volatility in the sector cannot be ruled out as investors take exposures as per expectation, mean reversion of valuation multiples vis-à-vis historical levels along with robust earnings expectation (CY20F: 35.1%) could result in price performance over the medium run.
AKD Research
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.
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