HOT STOCKS

Engro Polymer declares dividend of Rs10/share

Engro Polymer and Chemical Limited (EPCL) is a Pakistani polymer manufacturing company. It is a subsidiary of conglomerate of the Engro Corporation. Other than being the sole manufacturer of PVC resin in Pakistan, Engro Polymer and Chemicals Limited (EPCL) also produces caustic soda, sodium hypochlorite, EDC and VCM.

Moreover, the company is actively involved in ensuring sustainability of the domestic PVC industry, along with providing support through the provision of quality products and technical services.

Fundamental reasons for EPCL to perform include improvement in core delta (PVC-Ethylene), non-existent imports of finished PVC and declining Brent crude prices to indicate widening of the core delta.

KTrade observes a distinct kink in the PVC-Ethylene curve, compared with the Brent crude price, which has resumed the inverse relationship and is expected to maintain a plateau and otherwise climb above $400/tonne in the coming weeks.

So far in CY22, EPCL has maintained a high payout ratio, declaring a dividend of Rs10/share against an EPS of Rs9.91 and has still got substantial unappropriated reserves (Rs12/share) to make for any shortfall in the quarterly earnings and maintain a high payout in the fourth quarter, as well.

Quarterly EPS run rate substantially slowed down in 2022, which has its reflection in the stock price declining by more than 50 per cent from its all-time high.

At the current prices, EPCL is trading at PE of 3.5x versus the last five years average PE of 6.9x and currently trading in its lowest PE Band. We expect the stock to perform well in the coming week.

PPL may continue to ascent in coming week

The pioneer of the natural gas industry in the country, Pakistan Petroleum Limited (PPL), has been a frontline player in the energy sector since the middle of 1950s. As a major supplier of natural gas, the company today contributes around 20 per cent to the country’ s total natural gas supplies, besides producing crude oil, natural gas liquid and liquefied petroleum gas.

Analysts have highlighted PPL as an opportunity, which has returned more than 20 per cent at distinct intervals during the last two months. The rapid ascent that was seen in the last two weeks is driven by the expectation from the government’s new resolve to clear gas circular debt.

During the same period, institutional investors, especially mutual funds and insurance companies, considered it best to handover the position to individual investors and take the bet for the resolution of the circular debt prior to the end of the calendar year.

Different proposals have been highlighted to the government for the resolution of the circular debt and a concrete decision has not been taken yet. However, this very issue has crippled both the Oil and Gas Development Company (OGDC) and PPL in the last couple of years to affect their respective operational performance, significantly impacting the growth in earnings and exploration activity.

The possibility of complete resolution of the circular debt brightens the prospects of future earnings growth for PPL, the reflection of it is seen as a rapid ascent in the stock price.

KTrade expects PPL to continue the ascent in the coming week. However, it also expects profit-booking by the individuals at these levels to consolidate the gains. — Javed Mirza