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In anticipation of the expected reduction in policy rate the market continued its rally through the first half of the week before profit-taking capped the benchmark KSE-100 Index to 34027 points that was up by 0.71%WoW. Major news flows impacting the market included 1) a disruption in POL supplies due to PSO suffering from liquidity crunch that restricted its ability to import supplies but situation improved as the GoP responded by releasing a total of Rs68 billion to the Company 2) the current account deficit expanded by 18%YoY to US$2.36 billion despite a surplus of US$76 million in December last year 3) total liquid foreign reserves recorded a second consecutive decline in two weeks plunging to around US$15 billion for the week ended 16th January this year on account of debt servicing and 4) LSM has registered growth of 2.5%YoY during 5MFY15 due to low production of steel and delay in sugar crushing. Strong performers for the week were INDU ENGRO LOTCHEM and MEBL.

Laggards for the week included KEL NCL ICI and HCAR. Average daily turnover restricted to 302.34 million shares. Unless a positive surprise emanates profit-taking could continue next week.

The current account balance for December registered a minor surplus of US$7 6million compared to a deficit of US$568 million in November last year. The surplus for the month came on the back of 1) continued rise in remittances depicting a 19.8%MoM increase 2) improvement of 10.7%MoM/13.8%YoY in the trade deficit due to an up stick in exports to US$2.29 billion up by 22.7%MoM. Food and Textile sector outshined among exports with Food registering growth of 17%MoM to US$470 million and Textile exports up by 27% MoM to US$1.22 billion. However for 1HFY15 the current account deficit rose to US$2.36 billion from US$2 billion in 1HFY14 but remained stable as a percentage of GDP at 0.98%. The deficit widened for the first half due to a 2%YoY slump in exports during 1HFY15. Analysts expect this deficit to maintain the positive trend due to increasing workers' remittances and relative ease on the import bill due to oil prices hovering below US$50 a barrel.

PKR appreciated by 4% versus US$ in CY14 due to foreign exchange reserves remaining above US$15 billion levels.

Headline inflation for January'15 is projected to clock in at 4%YoY lower than 4.3%YoY in December'14. As a result CPI is projected to average at 5.8%YoY in 7MFY15 vs. 8.7%YoY in 7MFY14. Even if CPI picks up pace the full-year FY15 CPI average is likely to remain at 6.5%YoY. Considering 1) persistence of CPI 2) an improved external account 3) risks to immediate term GDP growth targets 4) slowdown in private sector credit offtake and (5) recent rate cuts in countries as diverse as India and Canada analysts believe the SBP will strongly consider a 100bps cut in the discount rate in the upcoming announcement scheduled on Saturday evening.

FFBL is scheduled to announce its CY14 results on 29th January. Analysts expect the Company to post net profit after tax (NPAT) of Rs3.24 billion (EPS: Rs3.48) for CY14 as compared to a NPAT of Rs5.61 billion (EPS: Rs6.01) posted for CY13 down 42%YoY. The prime reasons for the expected dip in earnings are: 1) sales declining by 12%YoY as volumes were down for both DAP (-11%YoY) and Urea (-5%YoY) and 2) decline in gross margins attributable to increase in GIDC levied on both feedstock (up by 52%) and fuel stock (up by 50%). On a sequential basis analysts expect the Company to post NPAT of Rs1.47 billion (EPS: Rs1.58) for 4QCY14 significantly up by 52%QoQ as seasonality (wheat sowing season) is expected to play its part in boosting earnings. Furthermore rise in other income by a hefty 101%YoY is anticipated to lend significant support to the bottom-line. The result announcement is expected to be accompanied by a final dividend of Rs1.4/share taking the total payout for CY14 to Rs3.15/share.

While FFBL can be considered as a dividend play some analysts believe the Company's fundamental outlook remains weak particularly as farm incomes come under pressure on the back of record low commodity prices.

EFOODS is scheduled to announce its CY14 results on 26th January. Analysts expect the company to post NPAT of Rs612 million (EPS: Rs0.80) for CY14 as compared to NPAT of Rs210 million (EPS: Rs0.28) posted for CY13 an encouraging growth of 185%YoY. Sales are expected to move past trough growing by 10%YoY where management's focus on volumes throughout CY14 is likely to yield fruits with major product categories already recovering from sales loss on account of distribution issues. On a sequential basis analysts anticipate NPAT to jump up to Rs360 million (EPS: Rs0.47) for 4QCY14 against a loss of Rs77 million (LPS: Rs0.10) for 3QCY14 led by 5%QoQ growth in sales and improved gross margins.

While GMs are expected to tread an average 18.6% for CY14 as compared to that of 22% for CY13 projected to make a sequential rebound in 4QCY14 to around 20% on account of 1) higher than expected drop in global dairy prices 2) seasonal weakness in milk procurement prices 3) recent price increase on certain product categories and 4) dip in furnace oil prices where fuel and energy is 4% of total cost. Having gained a solid 21% CYTD EFOODS currently trades at a forward P/E of 57x.
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Publication:Pakistan & Gulf Economist
Date:Feb 1, 2015

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