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Pakistan Strategy: Earnings sensitivity on FX, volumes suggest balanced outlook

  • In light of our discussion with investors and recent devaluation, we stress our earnings estimates of BMA Universe under two scenarios; (i) no pass-on of devaluation impact for cyclicals, and (ii) no pass-on  of devaluation in addition to 5% drop in volume in FY19/CY19E. 
  • Our analysis substantiates our view that risk to earnings outlook is balanced for now and key risks to corporate earnings growth have already been played out.
  • Earnings of BMA Universe increase by 0.8% relative to our base-case in the first scenario, while we yield <1% drop in overall corporate earnings growth in the second scenario. Currently, we project corporate earnings growth of 9/12% in CY18/FY19E.
  • Interestingly, 58% of KSE-100 index comprises of sectors with defensive earnings profile against USD and policy rate hike. For earnings profile, the contribution of defensive sectors is significantly higher at 81%.
  • Our liking is skewed towards E&Ps, IPPs, Textile & Fertz, while valuation in select cyclical stocks (banks, steel, select cement names) looks compelling. Our top ten picks are; PPL, Mari, MCB, UBL, HUBC, NCL, ASTL, FATIMA, EFERT and DGKC. 
Provider
BMA Capital Management Limited
BMA Capital Management Limited

​BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.

Analysts
Fawad Khan

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