Hot Stocks

Allied Bank Limited

The Allied Bank Limited (ABL) has managed to take its current investment book up to 88 per cent of its deposit size, one of the highest levels historically, on the back of increasing borrowings through repo (25 per cent of deposits).

With 54 per cent of the investment book parked in shorter tenor papers and 27 per cent of the book in floater long-term government bonds, as apprised in a corporate briefing session of the bank, ABL is wellplaced to optimally benefit from the ongoing increase in interest rates.

Though its Annual Deposit Ratio (ADR) has traditionally remained on the lower side, the larger investment book has led to recurring Tier I ROE to average at 18 per cent (on a policy rate of 10.75 percent).

The bank’s loan growth clocked-in at 19 per cent YoY as of September 2021, taking its ADR to 39 percent. Given the recent implementation of additional tax charges on lower ADR, the management shared that it would likely to take the bank’s gross ADR beyond 40 per cent to avoid the 5 per cent additional charge.

The bank; however, intends to maintain ADR levels in between 40 per cent to 50 per cent, resulting in an additional 2.50 per cent tax charge on the bank. To recall, the ABL’s adequacy ratios are the highest in the banking sector, touching 24.95 per cent as of September 2021, giving the bank ample room for growth in risky assets, as the minimum required Tier II CAR levels stand a 12.50 per cent, excluding the Covid-19 relaxations. The bank’s loan book is repriced at an average lag of three to six months.

The share of zero-cost deposits on a rise deposits increased 21 per cent YoY, driven by 24 per cent YoY higher zero-costs deposits. As of September 2021, the mix of zero-cost deposits stands at 40 per cent, while 43 per cent of the share was contributed by the savings deposits.

Going forward, the management intends to continue prioritising the deposit mobilisation in zero and/or low-cost deposits. The increase in focus would be seen in deposit growth from a balance of both, brick and mortar and digital model.

Service Global Footwear

SERVICE Global Footwear Limited (SGFL) is the largest footwear exporter of Pakistan since the last decade and in the last two years, it has accounted for over 40 per cent of the total leather footwear exports of the country. SGFL exports more than 95 per cent of its total production; in calendar year 2020, it exported footwear to 20+ countries over five continents.

The company supplies footwear to global brands such as Zara, Caprice, Diana Ferrari, Dockers, Jack and Jones, London Rebel, etc. The company is wholly- owned subsidiary of Service Industries Limited.

SGFL has recorded sales of Rs5.19 billion in the first nine months of 2021, which is 2.1 per cent less than the last year’s sale in the same period. However, if we look at the numbers closely quarter- wise, there is a definite recovery from last year.

The year 2021 started with the sales of  Rs1.67 billion in the first quarter, which is 16 per cent less than the sales of Rs1.92 billion in the first quarter of 2020. The quarter in comparison (first quarter of 2020) was an exceptional pre-Covid in the company’s history.

SGFL has since recovered and now it has reached pre-Covid sale numbers in the third quarter of 2021. In the third quarter (July-September), the company has exceeded Rs2 billion sales-mark with the pre-tax profit of Rs228 million.

The lower profits can be attributed to multiple factors, ranging from increased costs of local and imported raw materials, increased minimum wage, and most prominently, exponential increase (three to four times) in the freight of inbound and export shipments.

The SGFL management is committed to deliver high shareholder value. It has steered the company through a very tough period with perseverance and ambition. Even though, the company’s major markets; Germany, Italy, Spain, France, and the UK that covered 80 per cent of the total sales, were the most severely corona- affected countries; SGFL has managed to withstand and rise in the eyes of its customers.

The relationship with the customers has further strengthened due to the management’s forward looking approach, and now the foundation is set to take leap to the next level.

Panther Tyres Limited

PANTHER Tyres Limited is principally engaged in the manufacturing and sale of tyres and tubes for vehicles. The overall demand of tyres and tubes remained slightly under pressure due to inflationary pressures that is mounting since the close of the last quarter.

The prices of raw materials witnessed a rising trend throughout the quarter and the company has passed on the major chunk of the cost increase; however, the same could not be passed on in the OEM segment, which dented the overall profitability of the company.

The company’s management is cognizant of the situation and focusing on minimising the negative impacts and delivering positive results by leveraging its diversified product portfolio along with proactively exploring new business opportunities.

In this regard, Panther is aggressively working to restore the margins without compromising on the growth by devising different strategies. Cost optimisation and cost control exercise is already in progress to ease off the pressure of cost inflation and we are hopeful to achieve it very soon.

Moreover, the company is of the view that the prices of commodities would take a breath in the second quarter and the company will be able to focus more on volumes and efficiencies. The commodity prices are expected to further come down subsequently once the issue of supply disruption is addressed, which is expected to take place in the third quarter of this year.

The work on expansion project is progressing swiftly; the first phase of the project has already been completed during the current quarter and put to operation. This will help the company get more volumes in the forthcoming mini season of agriculture tyres; thus, will improve the margins of the company.