Listed companies results would start pouring in and analysts expect that banks, E&P and cement groups would show an average profitability growth in the range of 55 percent to 75 percent. Th result season is to arrive soon at the market. We expect from the last week of July 2006 companies at KSE to start announcing their results for the period ending June 2006.
The banking sector (21 percent weight in Index) would announce its half-year results of 2006 in the coming few weeks. This time analyst from Jahangir Siddiqui Capital Markets Ltd expects that banking sector to post an average growth of approximately 62 percent in 1H2006 as compared to corresponding period last year. The net interest income (NII) is likely to remain the major contributor.
Banks'' advances and deposits growth has started gaining momentum in 2Q2006 and spread of the sector is also at its three-year high of 7 percent. More precisely, first five months average banking sector spread are recorded at 7.3 percent which is 210 basis points more than the corresponding period last year. Large commercial banks earnings growth (NBP, MCB and UBL) will surpass growth of medium and smaller banks, it is believed.
"We reiterate our ''overweight'' stance on commercial banks and recommend ''buy'' for NBP, UBL, FABL and BoP.
The exploration and production (E&P) having a share of 32 percent in the Index will announce its full year results for FY06. We expect the sector to post a growth of 55 percent approximately in FY06 as compared to last year. The reason behind growth is the increased production and a huge upsurge in international oil prices.
Average international oil prices (Saudi light) for FY06 was $58.55/barrel, which is 42 percent high from the average prices of last year, and we think this would be the main reason behind profitability. As per our analysis $1 increase in international oil prices improves earnings of E&P companies by 3 percent on an average.
"We remain ''over-weight'' on these upstream oil companies and recommend ''buy'' for POL, OGDC and PPL.
For the cement sector, having 4.3 percent weight in Index, we expect profitability growth of close to 75 percent. Thanks to double digits growth in sales of 12.6 percent in FY06 and regular increase in cement prices during the year. The last quarter ie Apr-June FY06 is expected to be the best quarter of the year for the cement companies as in this quarter cement dispatches, following their past trend, remained strong and cement prices touched all-time high in April 2006.
We maintain our ''market-weight'' stance on the cement sector with DG Khan and Lucky Cement being our top picks.
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