KARACHI, Sept 28: In the last two sessions of the previous week (Thursday & Friday), the price in the Pakistan Telecommunication Company Limited (PTCL) stock shot up by Rs3.85, which was an incredible rise of 10 per cent in its value. Trading volume was a huge 164 million shares.

A seasoned investor believes that the 4 per cent gain registered by the KSE-100 index in those two sessions had more to do with the rally in PTCL, than anything else. Market watchers put forward many arguments, but the one that has fuelled the fire of speculation in the telecom stock is regarding the company's profitability.

Rumours have been doing the round that the company's earnings have received a big boost from an unexpected one-time tax entry or a tax reversal in the huge sum of Rs2 to 3 billion.

It would be interesting to watch if such 'positive earnings surprise' appears on the profit and loss account for the year ended June 30, 2004 to be released by the Board on Sept 29. It is immaterial whether such accounting entry does or does not impact the company's cash flow. But if such favourable adjustment does emerge on the financial statement, somebody somewhere would have to be applauded for having made an impossibly accurate guess.

Let that be so, for the alternative would be weird - quite clearly indicating that here was another case of insider information and possibly insider trading. For the chief watchdog -The Securities and Exchange Commission of Pakistan (SECP) - who may still cherish doubts on the recent insider trading in Hubco on the issue of troubles with the power company's generators, this would be the second such challenging case in less than ten days.

A day before the company is to announce results for FY'04 and the final dividend, PTCL share on Tuesday, saw intense volatility, starting out at Rs42.15 and moving between the high and low of Rs42.65 and Rs41.75, before closing at Rs41.85. The share in telecom was the volume leader for the day with 48 million or 15 per cent of all 310 million shares traded on Tuesday.

At the current price, the telecom stock is placed on an attractive price-to-earnings (p/e) multiple of 7.7 and the scrip offers about double digit dividend yield. A sample of five major stock brokerage houses, suggested that analysts had something to argue over the possible earnings and dividend expectations.

Elixir Securities expected PTCL to book net profit of Rs27.5 billion; earnings per share (eps) at Rs5.39 and final cash dividend in the range of Rs4.15 to Rs4.50 per share.

Jahangir Siddiqui Capital Markets said they expected after-tax profit at Rs27.9bn, translating into eps at Rs5.48 and cash dividend of Rs4.20 per share. Invest Cap forecast the telecom to post taxed profit between Rs26.3 to Rs26.6bn (eps Rs5.16 to Rs5.22) and cash dividend at Rs4 per share.

Arif Habib Securities put their bet on the most optimistic figures of after tax profit to range between Rs28.6 to Rs29.1bn (eps: Rs5.60 to Rs5.70). Dividend was expected to range between Rs4.25 to Rs4.40. And finally the First Capital Equities, which said it visualised profit after tax at Rs26.8 billion, representing eps at Rs5.25.

The brokerage firm looked forward to the PTCL board to recommend final cash dividend somewhere between Rs 4 to Rs 4.25. Almost everyone has something good to say about the telecom. During FY04, PTCL added 0.48m new lines (ALIS), which pushed forward the total ALIS to 4.46m.

The telecom moved more aggressively in the second half of the year, with 0.33m lines laid between Jan-June 2004. PTCL's new management recently embarked upon strategic ALIS expansion plan by offering free connections. The scheme is understood to have added another 175 to 200 thousand new customers.