Securities: ARIF HABIB SECURITIES LTD - Analysis of Financial Statements Financial Year 2004 - Q 2001 2009
Arif Habib Securities Limited (AHSL), the holding company of Arif Habib Group, was incorporated on 14th November 1994. It is listed on all the three stock exchanges of the country. This is an investment company and offers a broad range of financial services, including advisory, underwriting and brokerage.
Its principal activity is the business of investments of listed and unlisted securities. AHSL won the Top 25 Companies award of Karachi Stock Exchange consecutively seven years in a row 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.
INDUSTRY OVERVIEWThe stock market's performance has been dismal in Q1FY09. The KSE-100 index fell from the record high of 15,676 points on 18th April 2008 to record low of 9,127 points on 27th August 2008. This was due to unavoidable crises in Pakistan's financial sector.
The flight of capital from the country has lowered forex reserves due to political turmoil and real estate investment lure in Dubai. The high CRR and SLR requirements and interest payment on the euro bond this year also created liquidity problem for the banking sector to cater to such a large volume of transactions.
As there was a bearish trend in the stock market, the KSE board imposed a floor on KSE-100 Index in August 2008 to prevent further drop. During this quarter the KSE-100 Index has declined by 25%. Since the imposition of the floor, there has very low trading activity in the equity market. Hence the business of AHSL, like all other securities investments and financial services companies, has also been affected which is based on performance of the stock exchanges.
==========================================================================
Recent Results for Q1-09 Q1 '08 Q1 '09 (%)
==========================================================================
Operating revenue 387,900,964 107,289,036 -72.34%
Capital gain on investments - Net 46,817,594 71,214,192 52.11%
Operating expenses -10,601,036 -21,025,497 98.33%
Operating profit 424,117,522 157,477,731 -62.87%
Finance costs -16,455,290 -76,821,701 366.85%
Profit before taxation 2,723,766,507 371,588,544 -86.36%
Profit after taxation 2,100,735,907 -269,903,608 -112.85%
Earnings per share-basic and diluted 7 -1 -114.29%
==========================================================================
The company earned a profit before tax of Rs 372 million but the provision of tax rate up on the profit to give an after tax loss of Rs 270 million. Investment in unlisted companies increased (7.84%) but investment in listed companies declined (2510.33%). This has also contributed to the aggregate loss.
PROFITABILITYThe company reported an after tax profit of Rs 8 billion against Rs 3 billion last year, showing a significant increase of 123.9%. The AHSL stocks comparison vis-a-vis KSE shows that the company outperformed the benchmark and gave investors a higher than average return. However the profitability of the company has slumped compared to FY03 and this is largely due to macroeconomic variables that were unavoidable.
The operating revenue consists of consultancy/advisory fees and commission, dividend income, return on term certificates and income from CFS. The gross profit margins have remained steady. The operating revenue has increased by 45.08% in FY08. The gross profit has increased by 103.66%. This is due to a huge rise in capital gains on investments by 113.43%. The value of investments in subsidiaries has increased by 23.48% while that in associates by 137.03%.
Considering subsidiaries performance, AHL gave a greater EPS than last year (up by 35.65%), AHML reported a profit greater than last year (up by 15.6%), PAFL increased its profits by 166.7% which gained due to sale of carbon credits produced by CDM (clean development mechanism) project, Fatima Fertilisers will start production by mid 2009, Aisha Steel Mills will also be completed in 2009, Rozgar Microfinance Bank Ltd. made a profit against a loss in the last year.
The changes in gross profit were offset by changes in total revenues over the period under consideration as both changed by similar percentage points, resulting in a steady trend for gross profit margins. The increase in other income and gain on re-measurement of investments was large by 215.36% and 223.60% respectively.
The profit after tax has increased by 125.32%. The financial charges and other charges have increased by 31.29% and 80.58% respectively. Hence the huge increases in gross profit, gain upon re-measurement of investments and other income have resulted in a huge increase in profit after taxation.
Return on equity and return to assets have increased in FY08. The total assets and total equity increased 34.42% and 43.70% respectively but the net increased by 125.32%, which resulted in increases in ROE and ROA. The chart shows that the AHSL stock outperformed KSE.
LIQUIDITYThe trend of the current ratio shows that current liabilities have exceeded current assets by a greater percentage in FY08 1035.45% against 6.69%. From a nil balance of short term borrowings in FY07 to a Rs 1 billion balance has resulted in this large increase of current liabilities and deterioration of the liquidity trend.
This has consequently increased the interest expense on these borrowings. Moreover, the amount of deferred taxation has also increased leading to greater liabilities. However the servicing capacity of the firm is reasonable. The incomes have increased at a greater rate than expenses so the company will be able to meet short-term obligations from its revenues.
DEBT MANAGEMENTThe debt management shows a good picture. The debt-equity, debt-to-assets ratios initially declined up to 2006 and then increased slightly. As the long term debt-equity ratio is stable, it shows that the increase in debt was caused by current liabilities. Long term debt comprises of only deferred taxation which shows a modest increase of 59.03%. In current liabilities short term borrowings of Rs 1,541,696,789 were undertaken as against previous years.
This has led to an increase in current liabilities by an astounding 1035.45%. The times interest earned shows that the earnings of the company are sufficiently high to meet any interest payment due. This is largely due to increase in net profits, which in turn is due to good performance by subsidiaries.
INVESTOR EXPECTATIONSIn FY08, the EPS has declined drastically as the number of outstanding shares issued has increased tremendously by 934.48%, creating a dilution effect. Overall the market prices have declined. Yet the P/E ratio increased in FY07 as EPS had declined substantially.
The dividend per share has progressively declined from a high of Rs 15 per share in FY04 to a low of Rs 1.5 per share in FY08 as debt servicing requirements have increased. Book value per share has declined mainly due to increase in the number of outstanding shares. In Q109, the market prices have declined from Rs 161.48 in June 08 to Rs 73.89 in October 2008, as bourses' performance is generally not up to the mark.
At present, the prices of the stock have fallen down even more drastically as the imposition of floor has virtually closed down the market and trading of stocks have come to a standstill. This will affect both the earnings of the company and investor demand.
FINANCIAL PERFORMANCE (FY04-FY07)AHSL's overall profitability declined in FY07. Total revenues at Rs 2.53 billion were 3% lower than Rs 2.61 billion 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 showed a decline in FY07, but income to expense ratio has increased greatly in 2007. This is mainly due to higher decrease in expenses compared to that in revenues showing ability the AHSL able to cover its expenses by higher revenues.
The liquidity position though increased tremendously after 2005, but deteriorated slightly with the current ratio falling to 39 in FY07 compared to previous year's 44 due to a 20% 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 2005 from 2004, but followed a declining trend till 2007. It has remained almost stable from FY06. 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 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.
FUTURE OUTLOOKThe company faces a lot of challenges as the macroeconomic indicators of the country are worsening and the stock exchange is virtually closed. The foreign and domestic investment had declined drastically so even the well-reputed firms like AHSL also affected.
The flight of big investors from the capital markets like Hanif Kalia also depressed the market sentiments. The price trend shows a constant downward trend. If the government succeeds in boosting the investor's confidence by providing political stability, then the market activities may re-flourish.
Investments in new companies like Fatima Fertiliser and Aisha Steel Mills could add further value to the portfolio of AHSL as these will start their operations in the near future. In view of this, AHSL has good future prospects despite bleak macroeconomic situation. Yet the firm needs to prepare cautiously for the future in view of the domestic environment and should make some international arrangements for eg opening branches of Arif Habib Securities Limited in the Gulf countries etc.
==============================================================================================================================
ARIF HABIB SECURITIES LTD - FINANCIALS
==============================================================================================================================
Balance sheet (in rupees) 2004 2005 2006 2007 2008
------------------------------------------------------------------------------------------------------------------------------
SHARE CAPITAL AND RESERVES
------------------------------------------------------------------------------------------------------------------------------
Ordinary shares of Rs 10/- each 250,000,000 500,000,000 500,000,000 300,000,000 300,000,000
Issued, subscribed and paid up capital 80,000,000 200,000,000 290,000,000 3,000,000,000 3,000,000,000
shares of Rs 10/- each
Buy back of shares -20,000,000 - - -
270,000,000 3,000,000,000 3,000,000,000
Reserve for issue of bonus shares 120000000 - - - -
General reserve 2,500,000 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
Unappropriated profit 300,499,996 1,303,872,082 4,491,235,243 5,241,070,168 12,428,241,132
Total Shareholder's Equity 3,000,499,996 5,497,872,082 10,690,641,706 18,074,588,378 24,296,111,535
Non current liabilities
Deferred tax liability 1,251,296,567 1,833,794,116 2,916,235,559 -
------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES:
------------------------------------------------------------------------------------------------------------------------------
Short term running finance - secured - 1,098,780,748 24051162
Trade & other payables - 1,072,032,900 63,091,763 122,339,161 4,092,745
Interest and mark-up accrued 53,155,203 112,836,893 8,249,621 380,115 2,256,351
on short term borrowings
Taxation 49,100,000 56,400,000 22,112,500 18,122,191 51,140,420
Short term borrowings -120,000,000 1,541,696,789
Total Current liabilities 222,255,203 2,340,050,541 117,505,046 140,841,467 1,599,186,305
Total Liabilities 222,255,203 2,340,050,541 1,368,801,613 1,974,635,583 4,515,421,864
Total Liabilities and Shareholder's Equity 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961 28,811,533,399
------------------------------------------------------------------------------------------------------------------------------
NON CURRENT ASSETS
------------------------------------------------------------------------------------------------------------------------------
Operating fixed assets - tangible 3,061,770 6,755,485 9,015,659 5,399,800 28,298,232
Stork exchange memberships & licenses 41,600,000 36,600,000 - - -
Long term investments 17,000,000 436,120,080 6,540,329,828 14,508,840,738 22,877,767,999
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 44,590
Total non current assets 22,906,110,821
------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
------------------------------------------------------------------------------------------------------------------------------
Marketable securities 1,993,370,205 5,002,211,259 3,371,947,570 5,134,859,682 5,774,324,156
Trade debts 30,772,285 304,352,629 34,182,776 48,510,576 3,510,576
Sale proceed receivables 445441070 521066342 - -
Margin trading - clients - 1,072,728,675 612,771,791 16,169 15,000,000
Advances, deposits, prepayments 64,800,078 94,364,398 135116538 62,969,235 89,304,394
& other receivables
Cash & bank balances 554,213,791 28,809,752 584,751,815 288,574,762 23,283,454
Total current assets 3,088,597,429 6,502,466,713 5,259,836,832 5,534,930,424 5,905,422,580
Total Assets 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961 28,811,533,401
------------------------------------------------------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNT 2004 2005 2006 2007 2008
------------------------------------------------------------------------------------------------------------------------------
Operating revenue 434,067,416 793,062,395 594,121,740 360,594,399 523,141,850
Capital gain on investments - net 1,464,663,280 2,160,001,445 2,010,641,482 2,163,782,675 4,618,084,994
1,898,730,696 2,953,063,840 2,604,763,222 2,524,377,074 5,141,226,844
Operating expenses -97,970,102 -129,966,119 -76,538,194 -66,674,485 -80,848,351
Operating profit 1,800,760,594 2,823,097,721 2,528,225,028 2,457,702,589 5,060,378,493
Financial charges -32,295,713 -109,657,306 -195,972,754 -54,391,923 -71,412,061
Other charges -8,503 -10,714,779 -6,898,434 -12,457,500
Other income 5,928,634 6,976,697 3,048,997 4,779,848 27,440,616
Gain on remeasurement of investments -20,480,928 -80,452,145 2,443,837,943 1,533,688,265 4,836,626,205
-46,856,510 -183,132,754 2,240,199,407 1,477,177,756 4,780,197,260
Profit before taxation 1,753,904,083 2,639,964,967 4,768,424,435 3,934,880,345 9,840,575,753
Provision for taxation -48,565,547 -56,592,881 -611,061,274 -252,545,420 -1,543,404,787
Profit after taxation 1,705,338,536 2,583,372,086 4,157,363,161 3,682,334,925 8,297,170,966
Earnings per share-basic 213.17 129.17 143.36 12.27 27.66
Total Revenures 1,904,659,330 2,960,040,537 2,607,812,219 2,529,156,922 5,168,667,460
Total Expenses -130,274,318 -239,623,425 -283,225,727 -127,964,842 -164,717,912
------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS 2004 2005 2006 2007 2008
------------------------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS
------------------------------------------------------------------------------------------------------------------------------
Profit Margin 89.54% 87.27% 159.42% 145.60% 160.53%
Gross Profit Margin 99.69% 99.76% 99.88% 99.81% 99.47%
Return on Assets 52.92% 32.96% 34.47% 18.37% 28.80%
Return on Equity 56.84% 46.99% 38.89% 20.37% 34.15%
------------------------------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS
------------------------------------------------------------------------------------------------------------------------------
Current Ratio 13.90 2.78 44.76 39.30 3.69
Revenue/Expense Ratio 14.62 12.35 9.21 19.76 31.38
------------------------------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT RATIOS
------------------------------------------------------------------------------------------------------------------------------
Debt to Asset 0.07 0.30 0.11 0.10 0.16
Debt to Equity Ratio 0.07 0.43 0.13 0.11 0.19
Long Term Debt to Equity 0.000 0.000 0.117 0.101 0.120
Times Interest Earned 55.76 25.74 12.90 45.19 70.86
------------------------------------------------------------------------------------------------------------------------------
MARKET RATIOS
------------------------------------------------------------------------------------------------------------------------------
Earning per share 213.17 129.17 143.36 12.27 27.66
Price/Earnings Ratio 3.42 2.83 3.47 9.50 5.84
Dividend per share 15.00 10.00 10 7.50 1.50
Book value per share 375.06 274.89 368.64 60.25 80.99
No of Shares issued 8,000,000 20,000,000 29,000,000 300,000,000 300,000,000
Market prices(Year End) 728.00 366 498.00 116.60 161.48
==============================================================================================================================
==============================================================================================================
ARIF HABIB SECURITIES LTD - FINANCIALS
==============================================================================================================
Balance sheet 2004 2005 2006 2007
--------------------------------------------------------------------------------------------------------------
SHARE CAPITAL AND RESERVES
Ordinary shares of Rs 10/- each 250,000,000 500,000,000 500,000,000 300,000,000
Issued, subscribed and paid up capital 80,000,000 200,000,000 290,000,000 3,000,000,000
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 revaluation of investments - -6,000,000 1,929,406,463 5,833,518,210
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
--------------------------------------------------------------------------------------------------------------
Non current liabilities
--------------------------------------------------------------------------------------------------------------
Deferred tax liability 1,251,296,567 1,833,794,116
--------------------------------------------------------------------------------------------------------------
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
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
--------------------------------------------------------------------------------------------------------------
Total Liabilities 222,255,203 2,340,050,541 1,368,801,613 1,974,635,583
Total Liabilities and Shareholder's Equity 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961
--------------------------------------------------------------------------------------------------------------
Operating fixed assets - tangible 3,061,770 6,755,485 9,015,659 5,399,800
Stork exchange memberships & licenses 41,600,000 36,600,000 - -
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
--------------------------------------------------------------------------------------------------------------
CURRENT ASSETS:
--------------------------------------------------------------------------------------------------------------
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
Total current assets 3,088,597,429 6,502,466,713 5,259,836,832 5,534,930,424
--------------------------------------------------------------------------------------------------------------
Total Assets 3,222,755,199 7,837,922,623 12,059,443,319 20,049,223,961
--------------------------------------------------------------------------------------------------------------
PROFIT AND LOSS ACCOUNT 2004 2005 2006 2007
--------------------------------------------------------------------------------------------------------------
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 of investments -20,480,928 -80,452,145 2,443,837,943 1,533,688,265
Gain on remeasurement of investments -46,856,510 -183,132,754 2,240,199,407 1,477,177,756
--------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------
Profit after taxation 1,705,338,536 2,583,372,086 4,157,363,161 3,682,334,925
--------------------------------------------------------------------------------------------------------------
Earnings per share-basic 213.17 129.17 143.36 12.27
--------------------------------------------------------------------------------------------------------------
Total Revenures 1,904,659,330 2,960,040,537 2,607,812,219 2,529,156,922
Total Expenses -130,274,318 -239,623,425 -283,225,727 -127,964,842
--------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS 2004 2005 2006 2007
--------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS
--------------------------------------------------------------------------------------------------------------
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%
--------------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS
--------------------------------------------------------------------------------------------------------------
Current Ratio 13.90 2.78 44.76 39.30
Revenue/Expense Ratio 14.62 12.35 9.21 19.76
--------------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT RATIOS
--------------------------------------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------------------------------------
MARKET RATIOS
--------------------------------------------------------------------------------------------------------------
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
==============================================================================================================
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].
Comments
Comments are closed.