Pace (Pakistan) Limited (PSX: PACE) is a public limited company incorporated in Pakistan. The company began its operations in 1995 and is engaged in building, acquiring, managing and selling departmental stores, condominiums, super markets, shopping plazas, housing societies, utility stores, plot as well as other kinds of property. The company also conducts commercial, industrial and other related activities within and outside Pakistan. Pace is a part of First Capital Group which owns and operates a diversified business portfolio in financial services, real-estate development, media and telecom sectors.
Pattern of Shareholding
As of June 30, 2023, PACE has a total of 278.88 million shares outstanding which are held by 10,450 shareholders. Local general public has the highest stake of 67.58 percent in PACE followed by its associated companies holding 15.29 percent of its outstanding shares. Foreign investors including individuals and organizations account for 11.25 percent shares of the company. Around 4.69 percent shares of the company are held by joint stock companies. The remaining ownership is distributed among other categories of shareholders.
Financial Performance (2018-23)
Except for a staggering rise in 2022, PACE’s topline has been diving since 2018. The company has never posted net profit in any of the years under consideration. In fact, it has been registering operating losses since 2018 except in 2022. PACE’s gross margin which was in the negative zone in 2018 recovered thereafter to boast its optimum value in 2021. It then plunged in 2022 followed by a rebound in 2023. Operating margin only touted a positive figure in 2022 while net margin continued to hover in the negative zone throughout the period under consideration (see the graph of profitability ratios). The detailed performance review of each of the period under consideration is given below.
In 2019, PACE’s topline slid by 28.67 percent year-on-year. This was on account of no revenue derived from the sale of property during the year. Revenue from development services also registered a plunge in 2019. The cost of revenue slid by 46.54 percent year-on-year in 2019 due to lesser cost incurred from shops and commercial buildings sold during the year. Write down value of inventory to net realizable value also plummeted during the year. This resulted in a gross profit of Rs.110.01 million in 2019 versus gross loss of Rs.8.15 million posted in 2018. The company was able to curtail its operating expense by 21.89 percent in 2019 on account of lower payroll expense as the company streamlined its number of employees from 236 in 2018 to 231 in 2019. Another reason for lower operating expense was lesser commission on sales incurred in 2019. PACE’s other income fell by a massive 94.18 percent in 2019 due to high-base effect as the company earned gain on sale of non-financial assets during the year particularly investment property. Gain earned on the settlement of loans in 2018 was also missing in 2019 resulting in thinner other income. PACE operating loss ticked up by 2.89 percent in 2019 to clock in at Rs.65.40 million. Finance cost escalated by 21.27 percent year-on-year in 2019due to higher interest on redeemable capital incurred during the year. PACE’s gearing ratio surged from 62 percent in 2018 to 79 percent in 2019. Exchange loss from foreign convertible bonds also magnified by 160.86 percent in 2019. However, unlike previous year, PACE earned gain from change in the fair value of investment property in 2019. The company incurred net loss of Rs.929.25 million in 2019, up 73 percent year-on-year. This translated into loss per share of Rs.3.33 in 2019 versus loss per share of Rs.1.93 recorded in 2018.
PACE’s revenue further slumped by 46.52 percent in 2020 which was mainly attributable to significantly lesser revenue from development services. Cost of sales tumbled by 48.72 percent year-on-year in 2020 owing to lower construction cost and operating cost related to plazas. Gross profit in 2020 was 39.59 percent lesser than that of previous year, however, GP margin improved to 27.2 percent. PACE incurred 48.17 percent higher administrative and selling expense in 2020 on account of higher payroll expense coupled withan uptick in legal and professional charges. Other income boasted a 355.36 percent year-on-year jump in 2020 due to gain on the settlement of loans.Operating loss mounted by 165.87 percent in 2020 to clock in at Rs.173.88 million. Finance cost hiked by 48.55 percent in 2020 due to higher discount rate. The bottomline was somehow buttressed by lower exchange loss from foreign convertible bonds which shrank by 91 percent in 2020. Gain from change in the fair value of investment property also rose by 750.56 percent. This squeezed the net loss by 57.18 percent year-on-year in 2020 to clock in at Rs.397.88 million with loss per share of Rs.1.43.
In 2021, PACE’s revenue slipped by 12.33 percent year-on-year due to a drastic drop in revenue from development services. Rental income from lease of investment property also declined in 2021. Cost of revenue registered a massive fall of 57.36 percent due to lower construction and operating cost related to plazas. This resulted in 108 percent rebound in gross profit in 2021 whichtranslated into GP margin of 64.6 percent – the highest level during the period under consideration. PACE incurred 26.19 percent lower administrative and selling expense in 2021 due to lower payroll expense, thin legal and professional charges as well as a drop in impairment loss on trade and other receivables. Other income slumped by 26.26 percent year-on-year in 2021 due to high-base effect as the company earned gain on settlement of loan in the previous year. Operating loss in 2021 came out to be Rs.70.90 million, 59.23 percent lower compared to previous year. Finance cost also dived down by 34.64 percent in 2021 owing to monetary easing. PACE earned exchange gain of Rs.156.01 million on foreign convertible bonds in 2021 unlike exchange loss incurred in the yesteryears. Conversely, gain from change in the fair value of investment property posted 88 percent slump in 2021. PACE’s net loss fell by 88.36 percent year-on-year in 2021 to clock in at Rs.46.32 million with loss per share of Rs.0.17 – the lowest among all the years under consideration.
After three consecutive years of topline fall, PACE’s net revenue posted a staggering 487 percent year-on-year rise in 2022 due to tremendous growth in the sale of inventory in 2022. This included sale of pace tower units, completed units and land. Cost of revenue also hiked by 1092.24 percent on account of spike in the cost of construction in 2022. Gross profit grew by 155.36 percent in 2022, however, GP margin drastically fell to 28.1 percent. Administrative and selling expense hiked by 54.41 percent in 2022 due to higher impairment loss on inventory, fixed assets, trade and other receivables as well as escalation in repair and maintenance expense during the year. Other income registered a robust rebound of 859 percent in 2022 on the back of gain on the settlement of loan/lease liability. As a consequence, PACE boasted an operating profit of Rs.372.04 million in 2022 after four years of posting consistent operating losses. OP margin clocked in at 29.6 percent in 2022. Finance cost surged by 16.26 percent in 2022 due to spike in discount rate. PACE also incurred massive exchange loss worth Rs.818.89 million on foreign convertible bonds due to drastic decline in the value of Pak Rupee. Gain from change in the fair value of investment property improved by 62.46 percent in 2022. Higher exchange loss was the main culprit that resulted in massive net loss of Rs.618.44 million in 2022, up 1235 percent year-on-year. Loss per share also climbed up to Rs.2.22 in 2022.
Followed by a splendid revenue growth of 2022, came a topline drop of 80.75 percent in 2023. This was on account of a steep fall in the sale of completed units in 2023 coupled with no sale of Pace Tower units and land. This was the result of shattered investor confidence and lower remittances. Cost of revenue also dropped by 86.85 percent in 2023. Gross profit shrank by 65.16 percent in 2023, however, GP margin improved to 50.9 percent. Administrative and selling expense ticked up by 14.37 percent in 2023 due to drastic surge in the impairment loss on trade and other receivables. Other income slipped by 60.64 percent in 2023 due to lower gain on the settlement of loans. PACE incurred operating loss of Rs.85.15 million in 2023 versus operating profit of Rs.372.04 million in 2022. Finance cost posted an uptick of 16.92 percent in 2023 due to unprecedented level of discount rate. Exchange loss escalated by 73.58 percent in 2023 due to unabated depreciation of Pak Rupee. Gain from change in the fair value of investment property improved by 51.59 percent in 2023. Net loss magnified by 171.26 percent in 2023 to clock in at Rs.1677.60 million with loss per share of Rs.6.02 – the highest ever net loss posted by the company.
Recent Performance (9MFY24)
PACE recorded a whopping 838 percent year-on-year growth in its topline in 9MFY24. The growth in net sales was led by the sale of shops and plots during the period. Massive rise in the construction cost of shops and commercial buildings sold resulted in 2806.48 percent year-on-year spike in cost of revenue. In absolute terms, gross profit improved by 287.42 percent in 9MFY24, however, GP margin fell to 32.72 percent versus GP margin of 78.14 percent recorded during the same period last year. Administrative & selling expense surged by 19.87 percent during the period due to inflationary pressure. Impairment loss on trade &other receivables also expanded by 43.83 percent in 9MFY24. PACE’s other income rebounded by 88.44 percent during 9MFY24 on account of gain recorded on the settlement of loan, commission income on guarantee, income from parking & storage as well as mark-up on bank accounts and creditors written off during the period. Superior other income resulted in operating profit of Rs.530.16 million in 9MFY24, up 1003.30 percent year-on-year. OP margin clocked in at 27.71 percent in 9MFY24 versus OP margin of23.56 percent recorded during the same period last year. Finance cost ticked up by 12.88 percent in 9MFY24 due to higher interest incurred on redeemable capital and also because of higher discount rate. PACE recorded exchange gain of Rs.150.73 million on foreign currency convertible bonds in 9MFY24 due to stability observed in the value of local currency off-late. This was against the exchange loss of Rs.1367.88 million incurred by the company during the same period last year. The company was able to register net profit of Rs.471.38 million in 9MFY24 versus net loss of Rs.1488.24 million recorded during the same period last year. This was the first time after 2017 that the company posted a green bottomline. EPS was recorded at Rs.1.69 in 9MFY24 versus loss per share of Rs.5.34 in 9MFY23. NP margin stood at 24.63 percent in 9MFY24.
Future Outlook
Thinner remittances from overseas Pakistanis, imposition of higher existing and new taxes and risk aversion of both local and foreign investors on account of macroeconomic and political headwinds will continue to pose dire challenges to the real-estate sector. This coupled with escalated construction cost, higher electricity tariff and commodity prices as well as lower purchasing power of investors will affect the overall performance of the real-estate sector.
As of March 2024, PACE’s current liabilities exceeded its current assets by Rs.6140.227 million. Accumulated loss of the company stood at Rs.4315.198 million. Due to persistent losses, the company’s equity stood at negative 1206.130 million as of March 2024. This raises doubts on the ability of the company to continue as a going concern, realize its assets and discharge its liabilities.
The company is actively looking for lucrative investment opportunities just like investment in Pace Circle to transform its non-income producing assets to cash-flow operating assets. The company has also recently announced the completion of its project, First Capital Tower.