After the KSE hitting a trough on Tuesday, in the main the consequence of the MQM’s parting of ways from the ruling coalition in the centre and Sindh (you cannot be situated at Karachi and not feel the recoil effect), followed by a see-saw, the buoyancy was somewhat back on Wednesday.
The recovery was not quite wholesome, just by 60-odd points though the highs saw it trading at 160-plus too, but the drift despite an average volume of 61 million shares traded was quite clear. Not even an event as unsettling as the major party from the industry and mercantile capital of the country walking out of the government was good enough to hold the market pegged down for longer than a day.
Last Thursday, I had backed Millat Tractors Limited (MTL) as a good buy and had produced figures based on its Earning Per Share (EPS), the dividend and bonus shares handed out and its high price of 2010 to predict that it was likely to yield 37.5 per cent profit on investment.
Prior to writing that piece I had actually put my money where my mouth was by strengthening my investment in the company. This is how I went about it.
Around two weeks back, bang in the middle of June, I sold out my entire holding in IGI Insurance, a company with a double-A rating, not because it was a bad investment. Actually IGI had made me a sizable bit of dough over the last two years, and had yielded its share holders cash dividend at 20 per cent and 35 per cent in bonus shares this February too. Despite having booked these profits on it, at sale I was still assured of a gain of Rs11 per share on my initial investment. But since IGI is a December-closing company, it was prudent to divest it at the moment, with the intent to buy back later around the middle of September, before it got on the cusp in terms of value where it offered reduced profitability.
With the available cash, and insertion of additional cash, I bought some more of MTL shares, and ventured a sizable chunk of cash (by my standards, which for someone better endowed than me might indeed be nothing more significant than small change) on the company that was second on my stock broker MND’s list as a potential profit maker, Attock Petroleum Limited. Coming to MTL, our calculated risk (that is what all investment in bourses must be for an Average Joe or it is more likely than not that he would end up poorer later) has turned out to be right.
Even when the market was down in the last few days, MTL was still up. The couple of occasions when it ended the day at lower than its opening rate was only because of speculators selling heavily to book quick gains. And this week, it didn’t merely surge, it soared and in the process galloped past its last year’s high of Rs585. At close on Wednesday, it was selling at Rs606 apiece – Rs59 ahead from my buy at Rs547. And it still has not run out of steam.
Now to APL, applying the same yardstick that we did on MTL last week on a hypothetical investment of Rs100,000, let us work out what kind of profit it is likely to earn. On June 28, Rs100,000 investment on APL at its price of Rs375.50 each would have bought 266 shares. If the company didn’t announce a higher dividend than what it did pay out last year (dividend 300 per cent, bonus shares 20 per cent, when there is a possibility that it actually may, for its reported EPS for nine months is higher by Rs6), this would translate into (266 shares multiplied by Rs30 dividend comes to Rs7,999, and with bonus at 20 per cent getting another 53 shares, thus fetching Rs19,950) a total gain of Rs27,942 – 28 per cent, give or take small change. Again that is if you hold out till beyond the payout time, and not ask your brokerage house to encash for capital gain around the time of the board meeting.
These were the two changes that I made, and I am content with it, as this little work of putting the little spare cash at hand is going to supplement my income from my real day job between now and end-Augus to mid-September.
But these were slightly expensive, relatively high-end shares not in the class of Lever Brothers, but still of substantive value. There are some low-end buys too which still retain attractiveness, about them next week.
The writer is Sports and Magazines Editor, Pakistan Today
