Defensive stocks in times of uncertainty

Topline Securities identifies firms immune to global market shocks.


Express August 08, 2011

KARACHI:


International equity market sell-off and its repercussion on the domestic market have created waves of uneasiness amongst the local investors. With memories of 2008 local market sell-off still fresh in their minds, investors are selling with regards to the fate of their investments, according to Topline Securities research note.


Topline Securities in the note identified three defense stocks, which are relatively immune to the volatility of the international stock, currency and commodity markets.

Fauji Fertilizer Company

The country’s unique fertiliser market dynamics makes Fauji Fertilizer Company’s (FFC) net profit relatively immune to the fluctuation in the international market, says the note. Urea prices are currently at 40% discount to international urea prices.

The company’s earnings are expected to grow by 63% and 15% in 2011 and 2012, respectively, along with a dividend yield of 13% and 16% in the same periods.

Hub Power Company

Hub Power Company (Hubco) stands out as another scrip as its profitability is relatively unaffected by the volatility in the international market. With fuel charges as a pass through item, changes in the international oil prices have no impact in the company’s profitability while company’s profits are based on a growing return formula. At current levels, the company is offering dividend yield of 14% and 15% in fiscal 2011 and fiscal 2012, respectively.

Although there is no major risk to the company’s earnings, circular debt would continue to pose a threat to company’s cash position, adds the note.

Pakistan Telecommunication Company Limited

The company’s business dynamics are least affected by the international markets, says the note. The company’s profitability is primarily a function of domestic fixed line and cellular subscribers and average revenue per users. At current level, the stock is offering a dividend yield of 16 per cent in fiscal 2011 and 2012.







Published in The Express Tribune, August 9th, 2011.

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