With the turmoil in international markets, the threat of a global meltdown on top of the still unresolved US debt row combining with yet another cycle of violence in Karachi, the market understandably stayed depressed in every which way. With not too many domestic buyers filling in for foreign investors pulling out around US $20 million in the current month alone, volumes were extremely low and even the normally upwardly mobile scrips too took a bashing, making this past week rather a forgettable one.
On most days, the start was promising, and the KSE opened and stayed in the green zone for a while, before despondency set in. But with the news all round so disheartening, it was inevitable. The decline in blue chip companies, among others in sectors such as oil and gas, chemicals, general industrials etc, though was not as sharp. And, the owner of brokerage house where I trade, MND, is of the view that these are likely to regain the lost ground and indeed gain value closer to their respective board meetings.
According to him, most institutional buyers, as well as speculators and smart investors keep moving their investment – attaching it with scrips they favour for the shortest possible duration. For instance, those who are poised for a kill at the moment from the Fauji Fertiliser Bin Qasim and Fauji Fertiliser Company (Barra Fauji and Chhotta Fauji respectively in the everyday parlance at the bourses) through interim dividend, shall move on to their preferred choices, following the sequence in which the companies announce their board meetings. In this space, we have mostly discussed the June- and December-closing companies. There is very small segment that closes in September that even this writer was not aware of – and it pertains to the sugar industry. This industry being dependent on sugarcane crop, it has adjusted its annual cycle accordingly. You would find the sugar industry listed under the “Food Producers” segment along with others, including the blue chip of the blue chip companies, by far the market leader, Lever Brothers – its Rs100 base price share valuing Rs5,666 on Wednesday, after a drop of Rs65.
A glance shows that a couple of scores of sugar-producing companies are listed, but closer scrutiny would reveal that trading in most of them is lacklustre. Why? Of course, because not many are in the habit of paying dividend or bonus shares – despite the fact that the price of sugar has seen some steep rise in the last couple of years, bringing it at par with international rates. This must have resulted in windfall profits, but, so it appears, for the majority stake holders only. From this sector which for an ordinary investor must be an anathema, MND has come up with a gem of an investment opportunity in Habib Sugar Mills Limited. On Wednesday, and it pretty much reflects the general trend, the volume of most sugar mills was in single, two, three or four figures. Trade in only one company was under 20,000 shares, while the volume for Habib Sugar Mills was 168,022. Here is why.
This is one sugar mill which spreads its profit amongst its share holders, and it paid out dividend and bonus shares at an identical 25 per cent in 2011. This year, as reflected in its bi-annual report, its earning per share had improved, from Rs.4.08 to Rs4.46. Its previous high rate in Feb. 2011 was Rs36.50, and that made it a steal at around Rs26 at the moment – ensuring a 20 per cent gain if one sold the moment it touched Rs31. And if one waited to encash dividend and bonus, the profit could go upwards of 34 per cent (worked out on the basis of number of shares (3,846) in Rs100,000, with income accruing from 25 per cent dividend (Rs9615) and sale of an even percentage of bonus shares (961 at current value of Rs26 adding another Rs24,999), making it a total yield of Rs34,614. With such potential, and the sum tied up only for about three months, this September-closing scrip definitely is good enough to look into for a smart Joe Investor.
The previous week one had dwelled a bit on what to do when an investment has accrued loss, a massive loss – the poser being, stick with it or sell. This is a conundrum that most investors have found themselves in at one point or another. And this needs to be thrashed further in greater detail than we did last week. But with the word count up, we will pick up the thread from here next week.
The writer is Sports and Magazines Editor, Pakistan Today
