Securities Brokerage: ARIF HABIB SECURITIES LIMITED - Analysis of Financial Statements June 2004 - September 2007
Arif Habib Securities Limited (AHSL), the holding company of Arif Habib Group, was incorporated on 14th November 1994 as a Public Limited Company under the Companies Ordinance, 1984 and is listed on the Karachi, Lahore and Islamabad Exchanges.
The Company was incorporated to continue the securities brokerage business successfully carried on by Mr Arif Habib since 1989 as a sole proprietor under the name of Arif Habib. It holds license to carry out investment Finance Services under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
The principal activity is business of investments in listed and unlisted securities. AHSL has the single distinction of being recipient of the Top 25 Companies award of Karachi Stock Exchange for each of the five years since its listing in 2001. The company has the honour of being ranked 9th in the award list for the year 2005. AHSL holds shares in both the operating subsidiaries and other strategic investments.
ECENT RESULTS:The resent results announced in first quarter of FY08 showed a 39% increase in AHSL's PAT mainly due the 53% increase in operating revenue. Capital gains on the other hand registered a decline. Despite a decline in operating expenses, the operating profit decreased compared to SPLY. This decrease however offset by lower finance costs and gain on revaluation of investments which translated into a higher PAT despite a higher taxation in Q108 compared to SPLY.
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Operating Results for Q1-08 Q1 '08 Q1 '07 (%)
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Operating revenue 387,900,964 253,902,014 52.78%
Capital gain on investments - Net 46,817,594 496,923,132 -90.58%
Operating expenses -10,601,036 -16,455,650 -35.58%
Operating profit 424,117,522 734,369,496 -42.25%
Finance costs -16,455,290 -28,118,084 -41.48%
Profit before taxation 2,723,766,507 1,753,676,454 55.32%
Profit after taxation 2,100,735,907 1,506,709,508 39.43%
Earning per share-basic and diluted 7.00 5.02 39.43%
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FINANCIAL PERFORMANCE (FY04 - FY07):>
Overall profitability declined for AHSL in FY07. Total revenues at Rs 2.53 billion were 3% lower than Rs 2.61 billion earned last year. Total expenses also showed a 55% decline in FY07. However this did not translate into the bottom line PAT which declined by 11.4% in FY07 mainly due to lower operating revenue (declined by 39%) despite a 7% increase in capital gains.
Operating Profit also declined due to lower operating revenues. As a result both ROE and ROA declined in 2007 due to declining profitability. However ROE declined more sharply than ROA due to lower proportionate increase in equity base than in assets base with the same numerator that is PAT.
Also both net and gross profit margins registered a negative trend but there was a marginal decline in gross profit margin due to lower decline in gross profit compared to PAT.
Both revenues and expenses of AHSL showed a decline in FY07 but the income to expense ratio of AHSL has increased greatly in 2007. This is mainly due to higher decrease in expenses compared to that in revenues showing ability of AHSL able to cover its expenses by higher revenues.
The liquidity position of AHSL though increased tremendously after 2005, has deteriorated slightly with current ratio falling to 39 in FY07 compared to previous year's 44 due to a 20% increase in CL compared to a 5% increase in its CA. Also high current ratios of AHSL are mainly due to higher marketable securities (current asset) as AHSL is a security house.
All the debt management ratios indicate AHSL's decreased reliance on debt financing compared to equity financing after 2005. D/E ratio has increased in '05 from 2004 and but followed a declining trend till 2007. It has remained almost stable from FY'06. This is further confirmed by the long term debt to equity ratio which has remained almost same in 2007.
D/A ratio also follows a trend similar to D/E till 2007 due to above mentioned reasons. Just like to D/E it has remained almost stable and has not shown a sharp downturn.
TIE ratio has plummeted in 2006 due to lower EBIT coupled with high financial charges in 2005 after being flat in 2005. In 2007 the ratio recovered greatly as financial charges decreased by 73% to Rs 54 million (2006: Rs 196 million). Lower finance costs are attributable to enhanced ability in covering interest as EBIT declined marginally.
Hence one can say that AHSL needs to maintain its trend in improving its interest covering ability by further enhancing its EBIT. The (P/E) ratio shows how much investors are willing to pay per rupee of the reported profits, depends on the company's price per share and its earnings per share (EPS). The EPS has declined in 2007 as shown by the trend line. This is due to lower profitability coupled with increasing number of outstanding shares in FY07.
Hence, the P/E ratio followed an overall decreasing trend till 2005 but rose in 2006 and continued doing so till 2007 driven mainly by the effect of lower EPS.
AHSL's book value per share plummeted in FY07 due to denominator effect, on account of increasing number of issued shares compared to expanding equity base. As evident from the erratic DPS trend, the company did not skip dividend during any of the years. The regular and attractive dividend distributions to its prime stakeholders, shows maximization of shareholder's wealth as a prime objective of AHSL.
FUTURE PROSPECTS:
In today's business environment, when customized financial solutions and personalized services make a difference, AHSL by virtue of its resources, expertise and experience is the security brokerage firm that leads from the front and delivers total customer satisfaction. AHSL stands strong and is well placed to play an important role in Pakistan's rapidly growing economy.
The Company has met the challenges of a highly competitive market in the past and expects to maintain profitability by developing and implementing investment strategies to meet the needs of a changing market place.
AHSL maintains a well diversified portfolio of listed securities amounting to Rs 5 billion. With such a diversified investment portfolio, future growth is expected through continued well performance in its portfolio investments. Brokerage, asset management and banking subsidiaries are on a sound footing and are expected to yield good investment returns. Private equity and DMCC subsidiaries are yet to be developed. Fertiliser associates are also expected to do well both in short and long term. Hence one can maintain an overall bright outlook for the company.
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Arif Habib Securities Ltd - Financials
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Balance sheet 2004 2005 2006 2007
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SHARE CAPITAL AND RESERVES
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Ordinary shares
of Rs 10/- each 250,000,000 500,000,000 500,000,000 300,000,000
Issued, subscribed and 80,000,000 200,000,000 290,000,000 3,000,000,000
paid up capital
shares of Rs 10/- each
Buy back of shares -20,000,000 -
270,000,000 3,000,000,000
Reserve for issue of bonus shares 120000000
General reserve 2,500,000 4,000,000,000 4,000,000,000 4,000,000,000
Surplus/Deficit on - -6,000,000 1,929,406,463 5,833,518,210
revaluation of investments
Unappropriated profit 300,499,996 1,303,872,082 4,491,235,243 5,241,070,168
Total Shareholder's Equity 3,000,499,996 5,497,872,082 10,690,641,706 18,074,588,378
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Non current liabilities
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Deferred tax liability 1,251,296,567 1,833,794,116
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CURRENT LIABILITIES:
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Short term running - 1,098,780,748 24051162 -
finance - secured
Margin Finance-banks - 1,072,032,900 63,091,763 122,339,161
Creditors, accrued &
other liabilities 53,155,203 112,836,893 8,249,621 380,115
Taxation 49,100,000 56,400,000 22,112,500 18,122,191
Proposed dividend -120,000,000
Total Current liabilities 222,255,203 2,340,050,541 117,505,046 140,841,467
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Total Liabilities 222,255,203 2,340,050,541 1,368,801,613 1,974,635,583
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Total Liabilities and 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961
Shareholder's Equity
Operating fixed 3,061,770 6,755,485 9,015,659 5,399,800
assets - tangible
Stork exchange 41,600,000 36,600,000
memberships & licenses
Long term investments 17,000,000 436,120,080 6,540,329,828 14,508,840,738
Long term loan and advance 68,600,000 583,049,345 250000000 -
Long term deposits 3,896,000 2,931,000 261,000 53,000
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CURRENT ASSETS:
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Marketable securities 1,993,370,205 5,002,211,259 3,371,947,570 5,134,859,682
Trade debts 30,772,285 304,352,629 34,182,776 48,510,576
Sale proceed receivables 445441070 521066342
Margin trading - clients - 1,072,728,675 612,771,791 16,169
Advances, deposits, prepayments 64,800,078 94,364,398 135116538 62969235
& other receivables
Cash & bank balances 554,213,791 28,809,752 584,751,815 288,574,762
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Total current assets 3,088,597,429 6,502,466,713 5,259,836,832 5,534,930,424
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Total Assets 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961
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PROFIT AND LOSS ACCOUNT 2004 2005 2006 2007
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Operating revenue 434,067,416 793,062,395 594,121,740 360,594,399
Capital gain on investments
- net 1,464,663,280 2,160,001,445 2,010,641,482 2,163,782,675
1,898,730,696 2,953,063,840 2,604,763,222 2,524,377,074
Operating expenses -97,970,102 -129,966,119 -76,538,194 -66,674,485
Operating profit 1,800,760,594 2,823,097,721 2,528,225,028 2,457,702,589
Financial charges -32,295,713 -109,657,306 -195,972,754 -54,391,923
Other charges -8,503 -10,714,779 -6,898,434
Other income 5,928,634 6,976,697 3,048,997 4,779,848
Gain on remeasurement -20,480,928 -80,452,145 2,443,837,943 1,533,688,265
of investments
Gain on remeasurement -46,856,510 -183,132,754 2,240,199,407 1,477,177,756
of investments
Profit before taxation 1,753,904,083 2,639,964,967 4,768,424,435 3,934,880,345
Provision for taxation -48,565,547 -56,592,881 -611,061,274 -252,545,420
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Profit after taxation 1,705,338,536 2,583,372,086 4,157,363,161 3,682,334,925
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Earnings per share-basic 213.17 129.17 143.36 12.27
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Total Revenures 1,904,659,330 2,960,040,537 2,607,812,219 2,529,156,922
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Total Expenses -130,274,318 -239,623,425 -283,225,727 -127,964,842
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FINANCIAL RATIOS 2004 2005 2006 2007
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PROFITABILITY RATIOS
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Profit Margin 89.54% 87.27% 159.42% 145.60%
Gross Profit Margin 99.69% 99.76% 99.88% 99.81%
Return on Assets 52.92% 32.96% 34.47% 18.37%
Return on Equity 56.84% 46.99% 38.89% 20.37%
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LIQUIDITY RATIOS
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Current Ratio 13.90 2.78 44.76 39.30
Revenue/Expense Ratio 14.62 12.35 9.21 19.76
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DEBT MANAGEMENT RATIOS
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Debt to Asset 0.07 0.30 0.11 0.10
Debt to Equity Ratio 0.07 0.43 0.13 0.11
Long Term Debt to Equity 0.000 0.000 0.117 0.101
Times Interest Earned 55.76 25.74 12.90 45.19
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MARKET RATIOS
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Earning per share 213.17 129.17 143.36 12.27
Price/Earnings Ratio 3.42 3.47 9.50
Dividend per share 15.00 10.00 10 7.50
Book value per share 375.06 274.89 368.64 60.25
No of Shares issued 8,000,000 20,000,000 29,000,000 300,000,000
Market prices(Average) 728.00 366.00 498.00 116.60
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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