LAHORE – During the outgoing week, the market entered a consolidation phase on the back of renewed foreign interest, rising global commodities and easing political outlook, playing a catalyst role in bullish sentiment.

Positive expectations of changes in the modalities of Capital Gain Tax (CGT) were finally realized after Dr Hafeez Sheikh’s visit to the Karachi Stock Exchange (KSE) last weekend. Further interest in the market also came with the commencement of the result season. Resultantly, KSE-100 Index gained 1.6 percent WoW to close at 11,960 level. The positive sentiment was reflective in the massive improvement in average daily volumes which increased by 67 percent WoW to 145mn shares. Foreigners too jumped on the bandwagon and turned net buyers, obtaining shares worth US$7.4 million.

Investor interest was revived at the KSE on the back of Government of Pakistan’s acceptance of proposals of the SECP. These included 1) no probe on source of funds till June 2014, 2) eliminating WHT on turnover 3) freezing CGT rates at current levels 4) NCCPL shall act as withholding agent to deduct CGT and deposit the CGT from investors’ transactions and 5) Reduction of Cash requirements in the Margin Trading System. Additionally, FBR is expected to issue SRO for the changes made in CGT rules which will further clarify the situation for investors.

Main results released during the week were PPL, FFBL and LOTPTA. PPL posted EPS of Rs15.3 in 1HFY12 up 21 percent YoY and announced a cash dividend of Rs5/share. FFBL registered an EPS of Rs11.53 in 2011, up 65 percent YoY and declared cash dividend of Rs3.5/share. Moreover, LOTPTA reported EPS of Rs2.76 in 2011, a dip of 8 percent YoY. Furthermore, expectations of a healthy result triggered an out-performance of both DGKC and LUCK by 9 percent and 6 percent respectively.

Experts said that stocks managed to close near its session high on investor speculation on strong corporate earnings outlook ahead of major earning announcements due next week. They said that the local bourse closed in positive predominantly supported by OGDC. Result expectations kept investors interest in FFC which closed near to its upper cap with handsome volumes. On the other hand, lower than expected earnings announcement forced investors to liquidate their position in LOTPTA. Experts downplay the risk of any sudden fall in local cement prices due to major factors including persistent increase in cost pressures of local components.

Resultantly, they believe that despite no major uptick in dispatches, local cement prices would continue to remain at current levels of Rs410-425 per bag in 2HFY12 as well, thus contributing into double digit growth for cement sector in FY12

They expect Lucky’s bottom line to remain in tune of Rs3.05b (EPS Rs9.50) compared to Rs1.46b (EPS Rs4.52) in the same period last year.

 Moreover, 2QFY12 is expected to conclude in more optimistic note as they expect the company will post profit of Rs1.55bn (EPS Rs4.80) up 112 percent compared to Rs734m (EPS Rs2.27) in the corresponding period last year.

After the recent rise in cement prices experts have tweaked assumptions for Lafarge Pakistan (LPCL). The change has come on the back of 1) rigidity in soaring cement prices and 2) company’s declining cost efficiency. Consequently, we have marginally raised our target price by 3 percent. For 2011, they anticipate the company to report a loss of Rs218mn (Loss per share: Rs0.17) against a loss of Rs948 (Loss per share: Rs0.72) in 2010, however, in 4Q the company is likely to post a PAT of Rs108mn (EPS: Rs0.08).

This likely improvement in profitability is due to increase in average retention prices, dipping coal costs, and expected cost-cutting measures. Experts reiterate ‘Buy’ call on the stock as it offers an upside of 52 percent to our revised target price of Rs3.35. At current levels, LPCL trades at 2012F PBV of 0.3x.

Analysts believe firmness in average retention prices coupled with likely cost cutting measures that the management has planned for the 4Q will help the company to post a likely PAT of Rs108mn (EPS:Rs0.08). The company’s top line is likely to grow by 22 percent QoQ on the back of improvement in both prices and volumes. Moreover, austere cost cutting measures will further assist in gross margins improving to 24.6 percent from 10.5 percent in 3Q.

The recent rising trend of cement prices is likely to push the company in the green zone in 2012 and 2013.