The Pakistan Stock Market
The Pakistan Stock Market, more commonly known as PSX, has the reputation of being one of the most promising markets in the region. It has earned a lot for individuals on well-performing stocks, but, unfortunately, has also been the reason they lost fortunes on underperforming sectors of the economy.
The PSX was formalized in 2016 with the merger of the Karachi Stock Exchange (KSE), Lahore Stock Exchange (LSE), and the Islamabad Stock Exchange (ISE) into one single market. This resulted in a larger and more consolidated market with greater investment options for individuals.
The stock market has shown its tenacity even in times of Covid-19 and has generated significant trading volumes despite an economic downturn. However, there are some problems faced by investors when trading on the PSX.
Investors often complain about the long and tedious account opening process at PSX by an individual’s brokerage firm. This even discourages some investors from investing in stocks and moves them towards securities like bonds or mutual funds.
The reason behind PSX’s stringent criteria is that Pakistan appears on the grey list of the Federal Action Task Force (FATF), which is an international regulatory body for money laundering and terrorism. In order to prevent the reoccurrence of this, PSX has made account opening and trading a stringent process.
3 Pakistani stocks to know about
The PSX is split into three sub-segments based on market capitalization: small-cap stocks, medium-cap stocks, and large-cap stocks. When picking the top three stocks from the stock market, it is ideal to pick one from each sub-segment.
The consolidated market capitalization of the entire PSX stood at approximately PKR 22 billion as of 23rd March 2021.
1. Small-Cap Stock on the PSX
Unity Foods is one of the well-performing stocks in the small-cap category in the PSX. The company was initiated as a private concern in early 1991 and became listed on June 16, 1991. It operates in the agricultural business segment of the economy, exporting oilseeds that are processed for extraction and marketed for cooking oil and palm oil. They also deal in the production of confectioneries, wheat flour, and animal feed products.
Given that Pakistan is a consumerism-based economy, this company is predicated to perform well over time as a stock. Its market capitalization stood at PKR 29.6 billion with 994.05 million shares outstanding as of March 23, 2021.
Unity Foods is expected to have revenue growth of 22.75% per year and has shown an increase in earnings by 186.6% over the past year. However, since every stock has its risks, Unity foods has a diluted shareholding with a fluctuating share price.
The share price as of March 22, 2021 was PKR 29.78. The company earned a 277.4% return over the past year, higher than that of the Pakistani food sector with a return of 19.4%.
The Return on Equity is expected to be slightly low but stable at 19% for the next three years. This is more of a capital gain stock since the dividend payouts by the company are spaced out and irregular.
However, Unity Foods is financially stable since its short-term assets (PKR 33.3bn) exceed its short-term liabilities (PKR 27.9bn) and long-term liabilities (PKR 394.5mn).
2. Medium-Cap Stock on the PSX
Pakistan is a growing market that has ongoing public and private sector developments. Given the current government’s constant favouring of the construction industry, the demand for cement has been increasing at a stable rate for the past year.
Even though the industry faces losses due to a hike in coal and fuel prices last year, it has been able to recover in terms of sales and recorded a 15% sales increase for the first time in the eight months of fiscal year 2021.
A company that lies in the mid-cap segment of the stock market is Maple Leaf Cement, who just earned an award for their CSR activities in fiscal year 2021.
The company was incorporated as a listed company on the stock market in 1960 as a subsidiary of Kohinoor Textile Mills dealing with the production and sale of cement. They have a strong parent company and operate in a growing sector of the economy, which has classified them as a sound investment in this category.
The company has a market capitalization of PKR 50 million with more than 1 billion shares outstanding. The current share price of Maple Leaf Cement is PKR 45.56, a 125.43% increase from last year.
Its earnings are expected to grow at 31.99% per year, promising good returns for investors. It is a relatively stable stock that is less volatile than the market and can provide much-needed diversification to your portfolio. At the same time, the stock had returns (143.6%) higher than the cement sector (118.3%).
Maple Leaf Cement is expected to remain profitable for the coming years and is good for those thinking of investing in stock. Since it is a stable stock, the ROE is expected to be low but stable at 15.5% for the next three years.
Even though the company has previously suffered a loss, it is forecasted to remain profitable for the next three to five years. Given the capital-intensive nature of the industry, they have a high debt to equity ratio at 41.2%.
3. Large-Cap Stock on the PSX
Lucky Cement falls under the category of a large-cap stock in the profitable and growing cement sector. It is an industry giant that was incorporated in 1993. Lucky Cement has a market capitalization of PKR 271.31 billion and has 323.38 million shares outstanding.
The current share price (as of March 23, 2021) is PKR 839, a 125.11% increase from last year. The primary business of Lucky Cement is the manufacture and marketing of cement to the public and private sectors.
Lucky Cement is expected to have an increase of 25% in their earnings over the next year. Their earnings grew by 52% over the past year, which reflects the promising performance of the company and makes it a good investment for potential investors in the large-cap stock category. The company stock is less volatile than the PSX, which makes it a relatively safe investment.
Lucky Cement’s one-year return stood at 143.4%, higher than the 118.3% average return of the market.
The company is expected to have a high Return on Equity of 23.1% over the next three years. Lucky Cement’s current profit margin of 8.4% is higher than last year's 7.6%.
The company is financially stable when it comes to liquidity since its short-term assets of PKR 92.6 billion are higher than and its short-term liabilities of PKR 72.7 billion. However, the same cannot be said about its long-term liabilities, which are higher than its short-term assets that stand at PKR 110 billion.
Given the capital-intensive nature of the industry, Lucky Cement has a high debt to equity ratio of 72%.
These are just three stocks from the dozens on the Pakistan stock market - and you may choose any that fit your risk profile and investment goals.