Showing posts with label Declining oil prices. Show all posts
Showing posts with label Declining oil prices. Show all posts

Wednesday 2 March 2016

Pakistan stock market declines by 1.6 percent in Feburary

As the global markets remained volatile, Pakistan could not remain immune. During February 2016 the benchmark PSE-100 index slide marginally and closed at 31,370 points, down by 1.60%MoM.
While upward movement in oil prices (Brent up 5.6%MoM) restricted losses to some extent, continued foreign selling (net outflow of US$39.5 million), lackluster results announcements and adverse news flows (regulatory action, legal challenges) propelled bearish pressures.
Most of the sectors were on the downward spree except commercial banks, posting decent earnings announcements, up 2.9%MoM. All other sector posted decline that included Automobiles (down 8.3% on strengthening Yen), Fixed Line Telecommunication (down 5.7% on disappointing CY15 earnings) and Food Producers (down 5% on expected slowdown in earnings growth).
An AKD Research Report hints market sentiments during March 2016 will be driven by: 1) uncertainty on the political front particularly due to the actions being taken by law enforcing agencies against the brokers’ fraternity, 2) foreign selling and 3) Monetary Policy announcement within the month. Expectations are building that with declining PIB yields (down 60bps in the recent auction) and lower than expected inflation number, reduction in discount rate can’t be ruled out.
Taking charge after a very long time, the index heavy-weight, banking sector led the rally during the month under review. The outperformance was a function of above expected earnings announcements and year-end payouts.
Cements, on the other hand, remained on the sidelines, despite positive earnings surprises by players such as MLCF, DGKC and FCCL.
Strengthening of Yen against PkR (down 6.7%during the month) reversed gains for Automobile (down 8.3%MoM) making it one of the worst performing sectors.
With an outflow of US$39.5 million during the month under review foreigners continued to trim their equity positions taking FYTD net outflow to more than US$330 million. This marks the eighth consecutive month in which there has been a net outflow of portfolio capital with selling largely being a function of the global portfolio re-alignment strategy.
While foreign flows will continue to play a major role in determining market direction/participation going forward, analysts believe the Monetary Policy announcement due this month is of importance where a few market participants (particularly some banks) are now eyeing a rate cut.
Any surprise, in this regard should bring renewed interest in cyclical and yield plays. Apart from this, clarity on the regulatory front particularly with regards to implementation of reforms (Amendments to SECP bill, Licensing of operations regulations for NBFCs, Mutual Funds amongst others) would go far in renewing foreign investor participation. Trinkets of news flows surrounding the run-up to the budget FY17 are likely to drive performance accordingly.

Thursday 18 February 2016

HUBCO declares higher than expected dividend



Pakistan’s second largest independent power producer (IPP), Hub Power Company (HUBCO ) has announced its half yearly financial results for the period ended 31st December 2015. The entity has reported profit Rs5.3 billion (EPS: Rs4.59) attributable to holding company for the consolidated entity, posting 2%YoYdecline.
Profit for the quarter was reported Rs2.7 billion (EPS: Rs2.38), down 10%YoY but up 8%QoQ. With earnings resting within estimates, interim dividend payout of 45 percent was higher than the expectations. Higher profit can be attributed to Rs1.1 billion (EPS: Rs0.69) income from Laraib, up by 19%YoY.
Half yearly results reflect: 1) a 38%YoY reduction in turnover due to persisting fall in furnace oil price (45%YoY decline), 2) operating costs down by 42%YoY (majorly through falling input costs), 3) General and Admin expenses (rising 148%YoY) reflect expenses arising from headway on new ventures, and 4) financial costs sliding 33%YoY.
Being indicative of margin improvements from falling input prices, HUBCO results point to a rise in spending on account of new ventures, with accompanying losses being recognized in the consolidated accounts. Moreover, higher load factors failed to dent profits following the completed overhaul of the base plant, while diversification (income from Laraib) continues to support healthy payouts. 

Saturday 6 February 2016

Why analysts are talking about declining oil prices only?



Somewhere I read a story about the energy giants ‘seven sisters’ which virtually control the global economy. All analysts are talking about declining earnings of these companies but not about the benefits of low oil prices. The same is also true about Pakistan where analysts are too worried about earnings of less than half a dozen oil & gas exploration companies but hardly demand the government to stop persistent hike in taxes on petroleum products.
A few months back I raised a question in one of my blogs, who are the beneficiaries of declining oil prices? At that time my own inference was that the US is the biggest beneficiary, being the largest consumer of energy products. After lapse of a few months I still withstand my point of view. I even go to the extent of saying that not only all other oil producing countries are plunging into serious financial crisis but Saudi Arabia and Russia are worst hit. Lower oil prices may keep proceeds from oil export low for Iran but it may gain the most after easing of sanction it had endured for more than three decades. Its non-oil exports are likely to increase substantially and it may also succeed in attracting enormous foreign direct investment in virtually every sector. 
Declining oil prices have enabled the US in increasing its strategic reserves, oil imports remain high and indigenous oil production still hovers at record high levels, above 9.2 million barrels a day. Reportedly the US crude inventories have surpassed the 500 million barrels milestone. Two of the global benchmarks WTI and Brent bounced up and down throughout the week ended on 5th February. However, faltering global economies offer a chance to the US Fed not to hike the interest rate, resulting in weak dollar and pushing oil price higher again. 
The western media is now trying to create an impression that the collapse in oil prices is now bleeding over into the broader global economy. They talk about the ongoing down turn in oil exporting countries, from Saudi Arabia to Russia, Venezuela, Iraq, Nigeria, and more. They have strange rationalization that cheap energy should bolster consumption, but the drop in commodity prices has been so sharp that questions continue to arise about the creditworthiness of some oil producers, Venezuela tops the list. With billions of dollars in debt due this year a rapidly shrinking ability to deal with the crisis, a debt default may not be too far off.
Citigroup added its voice to those concerned about the health of the global economy, citing four interlinked forces – a strong U.S. dollar, low commodity prices, weak trade, and soft growth in emerging markets – for the sudden fragility and potential for a global recession. "It seems reasonable to assume that another year of extreme moves in U.S. dollar (higher) and oil/commodity prices (lower) would likely continue to drive this negative feedback loop and make it very difficult for policy makers in emerging markets and developing markets to fight disinflationary forces and intercept downside risks," Citigroup analysts warned.
ConocoPhillips (NYSE: COP) made news this week when it became the first US-based oil major to slash its dividend. Italian oil giant Eni (NYSE: E) was the only other oil major to have done so – it cut its dividend almost a year ago. ConocoPhillips cut its dividend by 65 percent this week, and the company’s CEO argued that the move would save $4.4 billion in 2016.
The oil majors are having trouble covering spending and also their shareholder payouts with their underlying cash flow. By and large, they are making up for the shortfall with new debt. Chevron took on an additional $9.6 billion in debt to cover dividend obligations, ExxonMobil added $10.8 billion in fresh debt, and BP took on another $4.6 billion. At some point, something has to give. S&P downgraded a long list of oil companies this week, including Chevron and Shell. It also put BP and ExxonMobil on review for a possible downgrade.

A quick rundown of the full-year earnings from some of the oil majors:

•    BP (NYSE: BP) lost $6.5 billion in 2015, one of the company’s worst on record.
•    ConocoPhillips (NYSE: COP) posted a loss of $4.4 billion in 2015.
•    ExxonMobil (NYSE: XOM) saw profits halve to $16.2 billion.
•    Royal Dutch Shell (NYSE: RDS.A) posted a profit of $3.8 billion, down 80 percent from 2014.
•    Chevron (NYSE: CVX) reported a loss of $588 million, its first loss since 2002.

Sunday 17 January 2016

Pakistan Stock Market Still Attractive


On Saturday, the U.N. nuclear watchdog announced Tehran had met its commitments to curtail its nuclear program and the U.S. was prompt in revoking the sanctions. These moves were not unexpected and the stock investors were mentally ready for such news.
In Pakistan PSX-100 took a nose dive and lost more than 1,000 point soon after opening of the market. It was much anticipated that with enhanced export of crude oil, its price will erode. Selling in E&P companies was anticipated but the phenomenon was not unique to Pakistan.
In Pakistan the general perception is that foreign fund managers are on selling spree. Prices of scrips in which foreign funds have huge investment (OGDC, PPL and POL) are down but the volume in their shares is still not very high. Bulk of the volume is still being contributed by second and third tier companies.
At the time I am posting this update the market has already recovered nearly half of the lost points. I am of the view that as the day proceeds those feeling jittery will gather the courage. Historically, at such junctures institutional investors step in and buy at bargain price.Therefore, my suggestion to the investors is ‘not to panic’, keep a close watch and enter the market at appropriate time.