Securities: ARIF HABIB SECURITIES LTD - Analysis of Financial Statements Financial Year 2004-Q1'09
Arif Habib Securities Limited (AHSL), the holding company of Arif Habib Group, was incorporated. It is listed on all the three stock exchanges of the country. It is an investment company and offers a broad range of financial services including advisory, underwriting and brokerage services. Its principal activity is the business of investments of listed and unlisted securities. AHSL won the Top 25 Companies Award of Karachi Stock Exchange for consecutively seven years from 2001 to 2007.
This is due to earning good return on equity, distribution of high dividends to shareholders and good corporate governance. AHSL holds shares in both the operating subsidiaries and other strategic investments. The diagram below clarifies the chain of hierarchy and the position of AHSL in the Arif Habib Group. This shows that the advantage of a well-diversified portfolio, creating useful synergies is responsible for the success of the company.
INDUSTRY OVERVIEW
The industry has faced a lot of challenges in the year 2009. The turmoil of the stock market index has led to many foreign investors not to invest in this region. This has an adverse effect on the portfolio of various securities in the industry. Arif Habib Securities has too faced such effects as its share price went as low as Rs 28.73 by the year-end. Companies faced losses by their year-end, due to the financial sector crisis that very badly hit the country. Reasons such as the inflation for the past year reached almost 20%, liquidity crunch for most of the banks and political instability in the country. Considering the stock market performance, it has been vulnerable to events in the country, as foreign investors are very cautious in relation of their investments. The share index has been on a decline.
PROFITABILITY
The company faced a huge loss in FY09. The operating revenue decreased to Rs 233 million from Rs 523 million in FY09. This together with the loss on investment, which amounted to Rs 815 million, resulted in the operating loss of Rs 2134.6 million, whereas in the previous year, the operating profit was at Rs 9154.2 million. This huge fall has resulted due to the financial sector crisis faced by the country. The huge loss in investments clearly points out the value of the portfolio, which declined significantly due to decline of the share index of KSE indexes. The profit before tax also was Rs 2134.6m this was because of the enormous finance cost that was on the short-term borrowing.
All of the profit ratios were in negative because of the loss that they suffered in FY09. Return on Equity decrease from positive 44.1% to -14.5% in FY09. This is because of shareholders' lack of interest in the current year as the general reserves were affected due to the loss, which led to the negative ratio. ROA also experienced the same trend such as ROE, the ratio declined from 34.1% to negative 12.6%. The same reasons can be attached to such financial performance.
Considering the industry, most companies faced the same situation such as Arif Habib Securities, except the JS Global Capital Ltd, which was able to sustain its profitability for FY09 and maintained healthy ratios in all other areas of performance. As the graph given below is indicating that the company's vulnerability to the share index is very elastic, a slow but consistent decline in the share index has greatly affected the profitability of the company leaving its investors very low level of return. Second point that can be made is the negative return that the shareholders had to incur because of the share index crisis, which fell from 15000 points to just 9200. This has resulted in a loss of the portfolio of the company.
LIQUIDITY
The liquidity crisis has hit the financial sector of the country, Arif habib has too affected by it. The current ratio has decreased from 3.8x in FY08 to 0.9x in FY09. This has resulted due to lower bank balances compared to FY08 and also because of a decline in the advances section of the current assets. This coupled with the short-term borrowing, which mounted up to Rs 2bn, has led to the decline of the current ratio for FY09. Considering the industry average of 0.97x, the company is doing fairly well in maintaining its liquidity, however the loss incurred during the year, might need the company to take extra care of their liquidity management. The other ratio, which is the income/expense ratio, showed a negative trend because the net income considered as losses because of the loss of the sale of the securities or the portfolio.
DEBT MANAGEMENT
The debt management of the company has shown a better image compared to the profitability for the year FY09. The company has maintained nil gearing ratio with respect to long-term debt-to-equity, however, maintained very low gearing ratio as Debt to Equity for the year FY09 is 0.16 and Debt to Assets is 0.12.
INVESTORS EXPECTATIONS
In FY09, the company has faced negative expectations from the investors' point of view; this is since the company has faced loss for the year FY09. The EPS showed a negative trend as well as declining trend. The share prices fell from a high of Rs 161 to low Rs 28.73, this led to EPS of Rs -7.38. Similarly the Price/Earning ratio showed a analogous trend with the prices declining very low the and the earnings going into negative the ratio resulted in Rs -3.89.
The loss has restricted the company to pay out any dividends in the current year, the dividend payout ratio is 0% for FY09. The book value per share has also declined to just Rs 43.03. Currently, there is a recovery in the share price of the company. It has recovered from a downturn, the share prices have been increasing over a period of time and are on the rising trend, as the investors are gaining confidence in the share index and started investing in the securities. This shows that there has been an improvement in the company's performance and investors' expectations, as we can see from the below graph.
FUTURE OUTLOOK
The future outlook tends to be more positive as the financial sector is on the recovery. The monetary policy was subjected to promote the growth of financial sector and easing of the monetary conditions in the economy. The global recovery, can be a positive approach for the investors, as they would find it cheaper to invest in KSE index, and by the company can gain confidence of their performance for the future year. However, certain factors would be of a cause of concern, such as the current Dubai debt crisis has led to Asian markets decline and has also affected the KSE indexes.
But again, the trend is rising and the investors have gained confidence as we can see from the volume being traded in the recent months. The company can use its management skills and expertise and avail the opportunity of the other markets that are being traded now as well, such as Futures and Debt markets. More investment opportunities might open up due to the global recovery and taking part in such investments Arif Habib can recoup from the loss that was incurred during FY09.
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Arif Habib Securities Ltd - Financials
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Balance sheet 2005 2006 2007 2008 2009
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SHARE CAPITAL AND RESERVES
Ordinary shares of Rs 10/- each 500,000,000 500,000,000 300,000,000 300,000,000 10,000,000
Issued, subscribed and paid up capit 200,000,000 290,000,000 3,000,000,000 3,000,000,000 3,750,000,000
shares of Rs 10/- each
Buy back of shares -20,000,000 -
270,000,000 3,000,000,000 3,000,000,000 3,750,000,000
Reserve for issue
of bonus shares
General reserve 4,000,000,000 4,000,000,000 4,000,000,000 4,000,000,000 4,000,000,000
Surplus/Deficit on
revaluation of investments -6,000,000 1,929,406,463 5,833,518,210 4,867,870,403 -87,425,952
Unappropriated profit 1,303,872,082 4,491,235,243 5,241,070,168 12,428,241,132 8,472,748,885
Total Shareholder's Equity 5,497,872,082 10,690,641,706 18,074,588,378 24,296,111,535 16,135,322,933
Non current liabilities
Deferred tax liability 1,251,296,567 1,833,794,116 2,916,235,559 2,950,231,966
CURRENT LIABILITIES:
Short term running finance - secured 1,098,780,748 24051162
Margin Finance-banks 1,072,032,900 63,091,763 122,339,161 4,092,745 110,154,289
Creditors, accrued &
other liabilities 112,836,893 8,249,621 380,115 2,256,351 90,790,200
Taxation 56,400,000 22,112,500 18,122,191 51,140,420 0
Proposed dividend -120,000,000 1,541,696,789 2632515667
Total Current liabilities 2,340,050,541 117,505,046 140,841,4671,599,1 2,833,460,156
Total Liabilities 2,340,050,541 1,368,801,613 1,974,635,583 4,515,421,864 5,783,692,122
Total Liabilities and Shareholder's 7,837,922,623 12,059,443,319 20,049,223,961 28,811,533,399 21,919,015,055
Operating fixed assets - tangible 6,755,485 9,015,659 5,399,800 28,298,232 72,156,282
Stork exchange memberships & license 36,600,000 0
Long term investments 436,120,080 6,540,329,828 14,508,840,738 22,877,767,999 16,544,539,328
Long term loan and advance 583,049,345 250000000 0
Long term deposits 2,931,000 261,000 53,000 44,59044,590
CURRENT ASSETS:
Asset classified as held for sale 2,673,313,686
Advance Tax 48,865,944
Marketable securities 5,002,211,259 3,371,947,570 5,134,859,682 5,774,324,156 2,544,376,775
Trade debts 304,352,629 34,182,776 48,510,576 3,510,576 0
Sale proceed receivables 521066342 0
Margin trading - clients 1,072,728,675 612,771,791 16,169 15,000,000 0
Advances, deposits, prepayments
& other receivables 94,364,398 135116538 62969235 89,304,394 17058918
Cash & bank balances 28,809,752 584,751,815 288,574,762 23,283,454 18,659,532
Total current assets 6,502,466,713 5,259,836,832 5,534,930,424 5,905,422,580 5,302,274,855
Total Assets 7,837,922,623 12,059,443,319 20,049,223,961 5,905,467,170 5,302,319,445
PROFIT AND LOSS ACCOUNT 2005 2006 2007 2008 2009
Operating revenue 793,062,395 594,121,740 360,594,399 523,141,850 233,286,220
Capital gain on investments - net 2,160,001,445 2,010,641,482 2,163,782,675 4,618,084,994 -815,888,842
2,953,063,840 2,604,763,222 2,524,377,074 5,141,226,844 -582,602,622
Operating expenses -129,966,119 -76,538,194 -66,674,485 -80,848,351 -168,860,237
Impairment loss on asset
classified as held for sale -1,011,194,260
Operating profit 2,823,097,721 2,528,225,028 2,457,702,589 5,060,378,493 -1,762,657,119
Financial charges -109,657,306 -195,972,754 -54,391,923 -71,412,061 -456,114,717
Other charges -10,714,779 -6,898,434 -12,457,500 0
Other income 6,976,697 3,048,997 4,779,848 27,440,616 84,185,148
Gain on remeasurement
of investments -80,452,145 2,443,837,943 1,533,688,265 4,836,626,205 0
-183,132,754 2,240,199,407 1,477,177,756 4,780,197,260 -371,929,569
Profit before taxation 2,639,964,967 4,768,424,435 3,934,880,345 4,780,197,260 -1,383,123,829
Provision for taxation -56,592,881 -611,061,274 -252,545,420 -1,543,404,787 -634,341,049
Profit after taxation 2,583,372,086 4,157,363,161 3,682,334,925 3,236,792,473 -2,017,464,878
Earnings per share-basic 129.17 143.36 12.27 10.79 -5.38
Total Revenures 2,960,040,537 2,607,812,219 2,529,156,922 4,645,525,610 -731,703,694
Total Expenses -239,623,425 -283,225,727 -127,964,842 -83,869,561 -456,114,717
FINANCIAL RATIOS 2005 2006 2007 2008 2009
PROFITABILITY RATIOS
Profit Margin 87.27% 159.42% 145.60% 160.53% -1186.92%
Gross Profit Margin 99.76% 99.88% 99.81% 99.47% -116.89%
Return on Assets 32.96% 34.47% 18.37% 28.80% -12.63%
Return on Equity 46.99% 38.89% 20.37% 34.15% -17.16%
LIQUIDITY RATIOS
Current Ratio 2.78 44.76 39.30 3.69 1.87
Revenue/Expense Ratio 12.35 9.21 19.76 31.38 -0.80
DEBT MANAGEMENT RATIOS
Debt to Asset 0.30 0.11 0.10 0.16 0.12
Debt to Equity Ratio 0.43 0.13 0.11 0.19 0.16
Long Term Debt to Equity 0.000 0.117 0.101 0.120 0.000
Times Interest Earned 25.74 12.90 45.19 70.86 -3.86
MARKET RATIOS
Earning per share 129.17 143.36 12.27 27.66 -7.38
Price/Earnings Ratio 3.47 9.50 5.84 -3.89
Dividend per share 10.00 10 7.50 1.50 0.00
Book value per share 274.89 368.64 60.25 80.99 43.03
No of Shares issued 20,000,000 29,000,000 300,000,000 300,000,000 375000000
Market prices(Average) 366.00 498.00 116.60 161.48 28.73
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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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