Morning Briefing for September 26, 2011 – Standard Capitals

Karachi: Adm. Mullen’s outburst against Pakistan’s key intelligence agency ISI has some reverberations on Pakistani politics as well as decision making of Standard Capitals’ fund manager friends.

According to Standard Capitals, it’s being said that America would continue to show restraint despite threatening posture, since any ‘unilateral attack’ on sanctuaries in North Waziristan may ignite further trouble for the weak Pakistani political government. The trouble would emanate within the streets which could wilt present ‘democratic set up’ wherein all strong army could push for an interim set up. The shaping up of this scenario is now evident from recent overtures by army top brass in Pakistan’s troubled Sindh province whereby army chief exchanged notes with Karachi based businessmen that indicate increased interest to trigger ‘political change’. Till now army has shown restraint despite economic meltdown given political expediency.

In light of this Standard Capitals pronounces that funds should keep FFBL since it would continue to dominate investors interest since it still provide 30% upside from present price. Many analysts have failed to capture real value in FFBL (given lack of understanding on agridynamics + co relation with international price) and this is evident from funds holding position on the stock.

Secondly, other fertilizer players are also at an advantageous position such as FFC and Fatima (Standard Capitals sees FFC and Fatima touching new highs). Standard Capitals does not like holding company i.e. Engro Corp and instead would like investors to wait for Engro Fertilizer IPO.

Among oil explorers, it is Pakistan Oilfields which continues to remain ‘favourite’ despite delays coming in Domial2 (presence of 1mmcfd gas + company’s inability of not lifting thick oil) that would keep investors at tenterhooks. Though, Standard Capitals likes OGDC due to developments in Zin Block where 85 development wells are planned.

Among emerging players, investors should not forget new German plant of Fauji Cement (FCCL; target price Rs 8/sh) which is now under production. People would only realize value once it would make a Lotpta like journey in coming months. Among other emerging players, Engro Foods (EFoods) also provide value.

Among banks, MCB and BAFL provide value (Standard Capitals likes BAFL since it provides lot of liquidity). Despite liquidity constraints, ABL is also a good option.

The developing political situation, though would initially send shivers down the spine, is likely to give ‘sign of relief’ to investors in and around December 11′. At present investors are wary from the current political impasse and are hesitating on filing CGT returns.