KARACHI, Oct 13: The country’s corporate sector has witnessed average annual profit growth of 23 per cent in three years — from financial year ’02 to ’04 — which is one of the fundamental reasons for the dominance of bulls at the stock market.
During the FY02, annual earnings growth stood at 25 per cent, which slipped a little to 10 per cent for FY’03, but took a massive jump of 33 per cent for FY’04.
Pakistan’s stock markets have risen in tandem. For the fourth consecutive year since 2002, stocks have continued to rally. The Karachi Stock Exchange has posted average annual return of 72 per cent in the last three years (2002-2004). And in spite of the March debacle, which saw the market plunge by 2,000 points in 10 days, the local bourse has recovered swiftly so that in the nine and a half months of the current year, the market has posted an upsurge of 41 per cent.
“Besides political stability and economic and financial reforms, it is the strength of the corporate world that is attracting investments in equities”, says Mohammad Sohail, director equity broking and research at JS Capital Markets Ltd (JSCML). In defence of his argument, the analyst presents a perfect example of Pakistan’s largest commercial bank — state owned, National Bank of Pakistan (NBP). The government of Pakistan had offered its shares for public subscription, for the first time in Feb 2002 at Rs10 per share. A year earlier to that in 2001, NBP’s profit had stood at Rs1.15 billion with earning per share (eps) at Rs3.08 and diluted Rs1.94 based on current shares.
“Now, after a span of four years, NBP is all set to post a mind-boggling profit of Rs12bn (diluted EPS of Rs21), which represents a mammoth growth of over 10 times in three years”, says Sohail. Calculations show that the share in NBP is currently trading at a price of Rs165.40. Investors who may have bought NBP stock in 2002 would have made a fortune; a return of incredible 2,587 per cent or an annualized return of 705 per cent, (after adjusting for dividends and bonuses).
The growth in corporate profitability in the recent years has been attributed to the overall economy that boosted the top line (sales) of major firms. Apart from that, lower interest rates and stable local currency also supported the bottom line. Rising international oil prices too helped heavy weight oil firms to show strong earnings growth during the three years.
JSCL report stated that the firm was forecasting an average earnings growth of 27 per cent in FY05 mainly to be contributed by banking and exploration companies. Banks are visualized to post average profit improvement of over 90 per cent this year while oil and gas exploration (E&P) companies had already announced their results with average profit jump of 42 per cent, thanks to rising oil prices. Again in FY06, due to higher global crude prices and increase in production, E&P companies were expected to post sharp spurt of more than 50 per cent in net profit, which in turn would result in overall corporate profitability earnings growth by 26 per cent.
