2009

Final Project Section - D

MUSLIM COMMERCIAL BANK

Abdul Ahad Khan, Ahmed Shaffi, Areej Tahir, Faraz Bokhari, Hassan iaz ! Sana "a#ed$

Executive Summery

The aim of this %roject &as to %re%are a stock #aluation re%ort for a com%an' and to anal'ze &hether it &ould be fa#orable for in#estors to bu' its shares considerin( the current economic situation in the &orlds in (eneral and in Pakistan in %articular$ The follo&in( research has been done on )uslim *ommercial Bank +td$ This re%ort includes a

thorou(h anal'sis of the bankin( industr' &hich is currentl' characterized as bein( one of
the hi(hest (ro&in( and best %erformin( sectors of Pakistan$ ,n order to determine &hether it &ould be %rofitable for in#estors to bu' the stock of )*B, &e conducted, in de%th Fundamental and Technical anal'sis$ The fundamental anal'sis includes the trends in #arious financials of the com%an' such as sales, %rofits etc$ Furthermore this anal'sis includes a detail ratio anal'sis &hich further %ro#ides insi(ht into the %erformance of the bank$ Also the intrinsic #alue of )*B &as calculated in order to determine &hether its %rice &as o#er or under stated in the market$ The technical anal'sis includes stud'in( the %rice trend of )*B o#er the %ast fe& 'ears and &ith the hel% of mo#in( a#era(es and Bollin(er bands the decision to bu' or sell )*B stock &as made$ After conductin( the fundamental and technical anal'sis, it &as concluded that it &ould be fa#orable for in#estors to bu' the stock of )*B$ The reasons su%%ortin( this decision include increasin( trends in Profit )ar(ins and -arnin(s %er Share .-PS/ of the com%an'$ Furthermore )*B0s di#idend %a'out ratio has been on the rise (i#in( another si(nal to %otential in#estors to bu' its share$ The intrinsic #alue calculation also sho&s that )*B0s %rice is under#alued in the market and is most likel' to rise$ +ast but not the least the technical anal'sis charts also (i#es a bu' si(nal to in#estors$

Economic Analy i o! "a#i tan

E$uity Mar#et %KSE &00'(

KS- 122 inde3 had been doin( fantastic from the 'ear 4222 to 4225$ Si(nificant ca%ital (ains &ere seen as the inde3 reached to its hi(hest le#els on A%ril &)* 200) of &+*,-, %oints$ Ho&e#er the (lor' &as short li#ed$ After the remo#al of the hi(h rankin( jud(es in Pakistan b' the )usharraf re(ime, thin(s started to take a chan(e for the bad$ The stock market dro%%ed belo& 12,222 %oints and in#estors0 confidence &as hi(hl' dismantled$ Pakistan has &itnessed alarmin( le#els of ca%ital fli(ht since the ne& (o#ernment took office$ ,t &as ri(ht after Benazir Bhutto0s assassination that forei(n in#estors be(an to %ull out their ca%ital from Pakistani markets$ But mainl' it has been due to the de#aluation of the Pakistani ru%ee a(ainst the 6S dollar$$ 7n Au(ust 45, 4225 directors of Pakistan0s main stock e3chan(e .The Karachi Stock -3chan(e/ im%osed a floor at 8,199 %oints hence tr'in( to sto% ant more ca%ital fli(ht from the countr'$ +ater &hen the markets &ere reo%ened a dro% in the KS- 122 inde3 &as still seen and it reached just o#er :,222 %oints as the markets started to sta(nate and maintain its %osition bet&een :,222 and ;,222 %oints$ The market &as hi(hl' unstable at the start of 4228 till toda' .9 th A%ril 4228/$ The main reason bein( the %olitical unrest in the countr'$ After the announcement b' the (o#ernment to restore the jud(es of the hi(her courts of Pakistan the stock market has (ained confidence once a(ain$ The stock market rose from :<:2 on 1=th march to <9=4 %oints on 9th A%ril, 4228$ This is the first time in months that the KS- 122 inde3 has crossed the <222 %oint barrier and still mana(ed to float o#er it$ >ith the %olitical situation stabilizin( the future of KS122 seems bri(ht and re&ardin( for the in#estors$

Intere t Rate an. In!lation

Intere t rate( The interest rates ha#e been si(nificantl' hi(her as com%ared to %re#ious 'ears$ The interest rate data from the market dashboard that &as maintained durin( the = months time sho&s that the lon( term K,B7 rate has decreased from 1;$4;? to 19$<9? o#er the = months$ )ore o#er the short term K,B7 rates also sa& a decreasin( trend$1 month K,B7 rate has decreased from 19$2;? in "anuar' =, 4228 to 14$<4? in )arch 4<, 4228$

In!lation( Pakistan econom' is facin( mountin( %ressures from e#er risin( inflation and food %rices$ ,nflationar' %ressures ha#e been seen across the (lobe, the inflation rate as measured b' the chan(es in *onsumer Price ,nde3 .*P,/ stood at 49$9 %ercent durin( the %eriod "ul' December 4225 as a(ainst 5$2 %ercent in the com%arable %eriod last 'ear$ The food inflation &as estimated at =1$4 %ercent and non food 18$4 %ercent, a(ainst 11$; %ercent and :$9 %ercent in the corres%ondin( %eriod of last 'ear$

Food inflation is @uite hi(h due to the increase in %rices of edible oil, %ulses, rice, milk, su(ar, %oultr', meat, &heat, &heat flour, fresh #e(etables and fruits$ The non food inflation is also hi(h because of hike in %etroleum %rices leadin( to s%urt in trans%ort (rou%, fuel and li(htin($

/0" an. Economic In.icator

Pakistan0s econom' has sho&n (reat resilience a(ainst shocks of #er' hi(h intensit'$ Domestic factors like hei(htened %olitical tensions, an unstable la& and order situation, su%%l' shocks, cou%led &ith e3ternal factors like a &orsenin( of international financial crisis, and an un%recedented rise in (lobal food and ener(' %rices tested the stren(th of economic fundamentals but Pakistan0s econom' (re& robustl' at :$5 %ercent in 422<-25, as a(ainst ;$5 %ercent last 'ear and this 'ear0s tar(et of <$4 %ercent, the economic (ro&th in 422<-25 a%%ears satisfactor'$ The econom' has (ro&n at an a#era(e rate of ;$; %ercent %er annum for the last si3 'ears &hich %ro#ides a source of o%timism that re(ainin( macroeconomic stabilit'$ Follo&in( (ra%h sho&s the #ariabilit' in the ADP (ro&th rate o#er the 'ears from 4222-4225$

1ORL0 O2ER2IE1

1orl. In.ice ( The recession of 4225-4228 did not onl' chan(e the economic structure but the financial scenario as &ell$ +ittle &as kno&n that the deficit &ould ha#e such a hu(e ne(ati#e im%act that &ould tra#el to all %arts of the &orld$ ,t didn0t take lon( for the &orld0s bankin( s'stem to colla%se after the colla%se of the +ehman brothers on 1:th Se%tember 4225$ The effect could be described as the domino effect &hich certainl' &as not e3%ected$ The stocks markets also fell do&n &ith it$ The in#estment banks also disa%%eared since the' couldn0t bear &ith the losses the' had to face$ The (lobal market faced a lot of li@uidit' %roblems$ ,t is estimated that almost 6SB4< trillion or o#er 92? &as &ashed a&a' from the (lobal stock markets$ The dash board maintained o#er the = months sho&ed that the major stock markets in the &orld sho&ed bearish trend in this time %eriod ."anuar' =, 4228 to )arch 4<, 4228/$ CASDAD, S!P, Cikkei, FTS- and D7> "ones all sho&ed declinin( inde3es as sho&n b' the fi(ure belo&$

A fluctuation in the #alues of indi#idual indices is sho&n as follo&sE

C3AR4&

Dow

FTSE

Nassdaq

NIKKEI

S&P

Intere t Rate an. In!lation

Intere t Rate ( There has been a tremendous decrease in the 6S funds rates in the recent months follo&in( the (lobal li@uidit' crunch$ The interest rate %olic' of the 6SA is arri#ed at zero interest rate %olic'$ Fed Funds ate is Tar(et from F- 7 to 2$4:?$ The lo&erin( of the Fed funds rates is to encoura(e in#estors to borro& funds and to hel% the econom' to (et mo#in( a(ain$ The a#era(e current interest rate comes out to be 9?$ From the abo#e table &e conclude that the Poland ha#e the e3act interest rate of 9?$ Cor&a' has the interest rates of 4$:2?$ Korea has =$22?$ Ce& Fealand =$22?$ >hereas the interest rates of the de#elo%ed countries like 6nited Kin(dom is less than 1? &hich is 2$:2?$ 6nited States 2$4:?, *anada 2$2:?$ S&eden has e3actl' 1?$ The follo&in( data sho&s different interest rates %re#ailin( in major economies of the &orld$

Countrie E5y6t Sout7 A!rica Au tralia C7ina 3on5 Kon5 SAR In.ia 8a6an Korea* Re6u9lic o! Ne: ;ealan. 4ai:an Icelan. Nor:ay "olan. Slova#ia S:e.en S:it<erlan. Unite. Kin5.om 4ur#ey Cana.a Unite. State Bra<il

Intere t rate 12$:2? 12$:2? =$4:? :$=1? 2$:2? :$:2? 2$12? =$22? =$22? 1$:2? 1<$22? 4$:2? 9$22? 4$:2? 1$22? 2$4:? 2$:2? 12$:2? 2$:2? 2$4:? 11$4:?

In!lation( ,nflation in all %arts of the &orld rocketed sk'&ards after the increase in oil %rices$ The oil %rices &ent to B19; %er barrel in "ul' 4225, due to &hich inflationar' %ressures &ere seen in all %arts of the &orld$ Ho&e#er the oil %rices did decrease in 4228, but the inflationar' %ressures are reactin( slo&l' to the decrease in oil %rices$ >orld inflation rate o#er the 'ears form 4222-422< &as stable until the (lobal financial crises hit, in the 'ear 4225 there is the all time inflation of the 41st centur'$ Alobal econom' is reco#erin( #er' slo&l' in 4228 &ith inflation rates comin( do&n slo&l', if this (lobal crisis is not handled b' the institutions around the &orld the inflation &ill be difficult to control$

Commo.itie Currency an. /0"

Commo.itie (

10

The commodit' %rices has sho&n an increasin( trend &ith the start of the 41 st centur', the lar(est increase &as seen in the 'ear 4225 &here the %rices &ere all time hi(h because of the (lobal economic crises$ The >orld Bank has forecasted that these %rices &ill come do&n in 'ear 4228 because there demand &ill fall The = months data collected in the market dashboard sho&s that the oil %rices ha#e a(ain risen sli(htl' in this time %eriod as sho&n in fi(ure belo&$

The risin( inflation also reacted on the Alobal Aold %rices, makin( the Aold %rices to (o u% as &ell$ ,n the %ast = months Aold %rices rose from B5<8 on "anuar' 9, 4228 to B84:$= on )arch 4<, 4228$

11

Currencie ( Des%ite the de%reciation of the 6S dollar in 4225 it mana(ed to (ain stren(th at the start of 4228 and maintained its stron( %osition$ Pak u%eeG 6SD rate rose from B;2 to almost B52 at the start of 4228$ Ho&e#er the e3chan(e rate has been &ell mana(ed from "anuar' 4228 to march 4228 kee%in( the 6SD in the ran(e of <2-51$

12

)oreo#er the 6SD (ained stren(th o#er other &orld currencies as &ell$ 6SD #alue a%%reciated as com%ared to the "a%anese Hen in the first = months of 4228$ >e can see from the fi(ure belo& that the e3chan(e commission of Pakistan has succeeded in maintainin( a stable e3chan(e rate as com%ared to other currencies$

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1orl. /0" 7#erall the &orld ADP increased in 4225 increased b' 99$:? .B:9 trillion to B<5 trillion/$ The (lobal economies like 6nited States, 6nited Kin(dom and -uro%ean 6nion all sho&ed a %ositi#e trend$ ,n the 'ear 4228 ,)F ha#e %redicted that due to (lobal financial crises the &orld ADP &ill onl' (ro& b' 4$4? &hich is a hu(e decline %ercenta(e &ise as com%ared to 'ear 4225 The major economies of the &orld and their ADP0s 2001orl. Unite. tate Euro <one 8a6an /ermany C7ina UK @rance Italy %trillion ' +=>?= &?>)&& &2>&-9 =>?-, ?>29?>2)0 2>-22>+,2 2>&0200) %trillion 1orl. Unite. tate Euro <one 8a6an /ermany C7ina UK @rance Italy ' -)>?,0 &=>?? &)>9?0 =>)== ?>)&) =>222 2>-)2>9)2>?99

Com6any o! c7oice an. rea on o! electionA

Intro.uction I)*B Bank +tdJ, formerl' kno&n as )uslim *ommercial Bank, &as the first bank in Pakistan to be %ri#atized follo&in( the %ri#atization %olicies outlined b' the (o#ernment of Prime )inister Shaukat Aziz$

After )r$ )ian )ansha took o#er as *hairman, the bank re#ised all of its %re#ious %olicies, aimin( to&ards hi(her %rofits as he himself is an industrialist and those instincts are the dri#in( force behind his zealous efforts for the financial &ell bein( of the or(anization$ Thus, the bank under his chairmanshi% has im%ro#ed a lot, aimin( to %ro#ide @ualit' ser#ices to its clients and standin( u% to the intense com%etition in the bankin( sector$ The' no& understand that cuttin(

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ed(e technolo(' is #ital for an' modern or(anization$ )*B continuousl' desi(ns %roducts and ser#ices that harness the best technolo(' for the sole benefit of its customers$ ,t is all concerned &ith chan(in( the conser#ati#e and anti %ro(ressi#e slant ado%ted b' the %re#ious mana(ement at )*B$

)*B is one of the leadin( banks of Pakistan &ith a de%osit base of about

s$ 4=2 billion and

total assets of around s$=22 billion$ ,ncor%orated in 189<, )*B soon earned the re%utation of a solid and conser#ati#e financial institution mana(ed b' e3%atriate e3ecuti#es$ ,n 18<9, )*B &as nationalized alon( &ith all other %ri#ate sector banks$ This led to deterioration in the @ualit' of the Bank0s loan %ortfolio and ser#ice @ualit'$ -#entuall', )*B &as %ri#atized in 1881$ Durin( the last fifteen 'ears, the Bank has concentrated on (ro&th throu(h im%ro#in( ser#ice @ualit', in#estment in technolo(' and %eo%le, utilizin( its e3tensi#e branch net&ork, de#elo%in( a lar(e and stable de%osit base and mana(in( its non-%erformin( loans #ia im%ro#ed risk mana(ement %rocesses$

15

MCB 4o.ay(

)*B toda' is one of the leadin( banks of Pakistan &ith a de%osit base of about S$ 4=2 billion and total assets of around s$=22 billion$ Durin( the last fifteen 'ears, Bank has concentrated on (ro&th throu(h im%ro#in( ser#ice @ualit', in#estment in technolo(' and %eo%le, utilizin( its e3tensi#e branch net&ork, de#elo%in( a lar(e and stable de%osit base and mana(in( its non%erformin( loans #ia im%ro#ed risk mana(ement %rocesses$ After %ri#atization, )*B is no& in a consolidation sta(e desi(ned to lock in the (ains made in recent 'ears and %re%are the (round&ork for the future (ro&th$ The bank has restructured its asset %ortfolio and rationalized the cost structure in order to remain a lo& cost %roducer$ )*B no& focuses on three core businesses namel' *or%orate, *ommercial and *onsumer Bankin($ *or%orate clientele include %ublic sector com%anies as &ell as lar(e local and multi national concerns$ )*B is also caterin( to the (ro&in( middle class b' %ro#idin( ne& asset and liabilit' %roducts$ The bank %ro#ides 49 hour bankin( con#ince &ith the lar(est AT) net&ork in Pakistan co#erin( =2 cities &ith o#er 91= AT) locations$ The Bank0s u%ee Tra#eler *la@ues ha#e been market leaders for the %ast si3 'ears and ha#e recentl' launched their Aift *he@ue Scheme$

2i ion Statement *hallen(in( and *han(in( the >a' 'ou Bank$

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Mi ion Statement

To become the %referred %ro#ider of @ualit' financial ser#ices in the countr' &ith %rofitabilit' and res%onsibilit' and to be the best %lace to &ork$

REASONS @OR C3OOSIN/ The basic reasons for choosin( this or(anizationE

Bankin( sector is a #er' (ro&in( sector 7ne of the to% : banks in Pakistan ,nno#ati#e %roducts and ser#ices Kast net&ork &ith =: %lus branches -3%andin( or(anization

LEA0IN/ @IRME )*B is the leader of local commercial bank su%%orted b' its increasin( trends of re#enue, all o#er Pakistan$ INNO2A4I2EE ,t &as the first Bank &hich introduced AT) Technolo(' in Pakistan$ 2AS4 NE41ORKE All o#er Pakistan, it has most AT) )achines, and most Branches a#ailable, and no& the net&ork transaction can be done throu(h mobile %hones as &ell$ EB"AN0IN/ OR/ANISA4IONE Cot onl' in Pakistan, it has come u% &ith an idea of introducin( shares in +S- .+ondon stock e3chan(e/$

17

Com6etitor Analy i
There are =8 banks currentl' o%eratin( in Pakistan$ Ho&e#er, there are onl' 9 com%etitors of )*B$ These include Bank Alfalah, 6B+, CBP and HB+$ The com%etitor anal'sis has been done usin( (ra%hs and charts in the follo&in( %a(es$ The descri%tion of 4 banks is also (i#en belo&$

18

19

20

21

22

/ro:t7 "ro 6ect (

From the last 'ear Pakistan has been facin( serious %olitical instabilit' and challen(es$ Ho&e#er, after the reinstatement of the de%osed jud(es, liftin( of (o#ernor rule in Punjab, reinstatement of Sharif0s (o#ernment in Punjab and mo#e to&ards reconciliation of t&o major %olitical %arties Pakistan is once a(ain on the %ath of %olitical stabilit'$ As effect of this, Pakistan stock market has also started (oin( on %ositi#e trend, sho&in( a sli(htl' bullish trend$ Ho%efull' this %olitical stabilit' &ill affect e#er' industr' es%eciall' the 9an#in5 ector in %ositi#e &a'$ Pakistani bankin( sector is still (ro&in( but on medium %ace as com%ared to %re#ious (ro&th in recent 'ears$ ,n 4225 Pakistan bankin( sector sho&ed a (ro&th of <?$ -s%eciall' in ,slamic bankin( there are more (ro&th %ros%ects$ MCB Ban# is a leadin( commercial bank of Pakistan$ ,t is amon( the fi#e lar(est banks of Pakistan$ These banks dominate the bankin( structure of Pakistan$ ,n the %re#ious 'ears )*B has sho&n a si(nificant (ro&th$ ,t is a first Pakistani or(anization &hich &as listed on +ondon stock e3chan(e$ ,n 4225 it recei#ed a euro mone' a&ard for best bank in Asia 4225$ Future %ros%ects for )*B are #er' bri(ht$ )*B has a sho&n 9=? (ro&th in FH 422<$>ith SBP raisin( the u%%er limit of retail e3%osure to Pk <:mn .not be more than 4? of (ross retail %ortfolio of the bank/ in case of consumer loans and small business loans, )*B has increased its %enetration this hi(h mar(in se(ment$ Des%ite the challen(es of declinin( demand ! risin( CP+s due to hi(her interest rate #ulnerabilit' and late entr' alon( &ith established brand e@uit' of e3istin( %la'ers like 6B+, *onsumer financin( continues to be a %rofitable niche for )*B$ )*B is in %rocess of launchin( more inno#ati#e %roducts &hich &ill hel% )*B bank in (ro&in( more$ As the size of )*B is #er' lar(e and it comes under the fi#e lar(est banks there are much chances of (ro&th for )*B due to its stron( muscles$

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"a t* "re ent an. @uture 4ime erie analy i

RS> 000 Revenue "ro!it %A4' 4otal Lia9ilitie 4otal A et S7are Ca6ital E Re erve Ex6en e E"S S6rea. 0e6o it A.vance

A#era(e Annual Aro&th 2-C =?C &0C &&C ?)C 20C 2=C D &0C ,C

2002 D &*-++ D 2?+*&?9 ,*?&= D ,>, &,C &)2*-0, &)2*-0,

200? D 2*2?0 D 2-2*?2= -*-2, D ->? &0C 2&&*+&& 2&&*+&&

200= &-*-2+ 2*+=0 2+9*&-? 2+9*2)+ 9*?9? 9*=92 ->+ -C 2&9*9,, 2&9*9,,

200+ ??*0-? )*922 29)*--, 29)*--&-*))? 9*?=, 20>9 &0C 229*?=+ 229*?=+

200, =+*&?0 &2*&=2 ?=2*&0) ?=2*&0) ?+*,+&&*0)+ 22>2 &2C 2+-*=,2 2+-*=,2

200?)*?0+ &,*==& ?++*?+? =&0*=), =+*=&= &?*9?2=>? &2C 292*09) 2+)*9+9

200) =+*9-) &+*?2? ?)+*&+? ==+*2)+ =?*0++ 20*&0? 2=>+ &0C ??0*2=+ 2,2*+0)

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Revenue an. "ro!it (

Abo#e chart sho&s the trend of net income or %rofit after ta3 o#er the %eriod of fi#e 'ears$ ,n 4229, %rofit after ta3 amounted to s 49=4 billion &hich drasticall' increased to the le#el of 5,844 billion in 422:$ Cet income &as 14,194 billion in 422; and &ent u% to 1:,4;; billion in 422<$ ,n 4225, the (ro&th rate remained #er' lo& and remained almost sta(nant at 1:,=4= billion ru%ees$ ,t sho&s a #er' stead' and health' (ro&th o#er the 'ears$

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Mar#et 7are(

7#erall the bankin( industr' of Pakistan com%rises of both nationalized and %ri#ate banks$ ,n terms of both loans and de%osits, <; ? of the bankin( sector com%rises of %ri#ate banks$ This is %rimaril' because of the %ri#atization %olic' ado%ted b' the (o#ernment$ The remainin( 49? are %artiall' or &holl' o&ned b' the state $in the %ri#ate sector both local and forei(n banks o%erate$ 89 ? are local banks &here as forei(n bank %artici%ation is onl' u% to ;?$

Amon( the local banks, 82 ? of the share is distributed amon( the to% : banks &hich are 1$ )uslim *ommercial Bank 4$ Cational Bank of Pakistan =$ 6nited Bank +imited 9$ Habib Bank +imited :$ Bank Alfalah$

These : banks form ::? of the &hole bankin( sector of Pakistan and the stabilit' of the sector is hi(hl' de%ended on the smooth runnin( of these fi#e banks$ )ore o#er these banks are the trend setters in the o#erall bankin( sector$ Amon( these to% fi#e banks, more than =:? of the share is &ith )uslim *ommercial Bank$

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S1O4 analy i

S4REN/43S

1EAKNESSES

1$ )*B has the hi(hest 7- amon(st its com%etitors 4$ )*B has the hi(hest Cet ,nterest )ar(in com%ared to HB+, CBP, etc$ =$ ,t has lo&est a#era(e de%osit rates$ 9$ ,t has a hi(h consumer loan (ro&th rate$ :$ ,t has an e3tensi#e branch net&ork ;$ ,t has less e3%osure to te3tile sector as com%ared to %eer banks$ <$ ,t has AAL ratin( for lon( term and A1L for short term b' PA* A sho&in( hi(h credit @ualit' and lo& credit risk$

1$ ,t has an increasin( rate of CP+s .from 9$;<? to ;$;8?/$ 4$ ,ts -PS (ro&th rate is decreasin( o#er the %ast 'ears$ =$ Does not ha#e international reco(nition$ 9$ Thou(h its in#estments are increasin( but 92? are confined to in#estment in (o#ernment securities onl'$ This reduces its returns$

O""OR4UNI4IES

43REA4S

1$ )*B can focus on consumer bankin( to increase 'ields 4$ ,t can &ork to im%ro#e the conditions of CP+s =$ Durin( recession, it can take ad#anta(e of decreased *ash eser#e e@uirement$ 9$ ,t can e3%and its ,slamic bankin($

1$ )*B has threat from banks like 6B+ &hich has ;<? lo& cost de%osit base 4$ ,t also has threats from banks includin( CBP and 6B+ that are increasin( their branch net&ork to encoura(e de%osit raisin($ =$ Threats from Ao#ernment if it raises * and S+ $ 9$ ,t has threats from Al-falah and 6B+ as far as *ar Financin( is concerned :$ Similarl' CBP is a threat in house financin($

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Intrin ic 2alue(
>e used the Multiple Growth Model for the calculation of intrinsic #alue of )uslim *ommercial Bank and com%ared it &ith the current %re#ailin( market %rice .as at 24 nd A%ril, 4228/$ The details are as follo&sE

Fear 0"S

200=
1$4;

200+
4$=5

200,
9$5

2009$<=

200)
8$5=

No o! 7are in @ive Fear (

;:2,222,222 ;:2,222,222 ;:2,222,222 1,222,222,222 1,222,222,222 M M M M M 4229 422: 422; 422< 4225

0ivi.en. 6ai. in t7e la t @ive Fear (

515,=2;,222 1,:9:,95=,222 =,144,:12,222 9,<45,98;,222 8,5=9,151,222 M M M M M 4229 422: 422; 422< 4225
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-stimation of -3%ected Aro&th ate b' F* N 122

&2>=) C

Di#idend Pa'out atio .d/ 7Annual Aro&th ate .(1/

M M M M

;9$4? $=2 7- .1 N d/ $=2 .1-2$;94/ M &0>&?C

e@uired eturn on the stock e@uired eturn on the stock

M M 20>?& C

Annual /ro:t7 Rate %5&' Ex6ecte. /ro:t7 Rate %52' Re$uire. Return on t7e toc# Ba e year 0ivi.en. 6er S7are %200=' Current 0ivi.en. 6er S7are %200)'

&2>=) C 12$1=? 42$=1 ? s$ 1$4; %er share s$ 8$5= %er share

Met7o. !or Calculation o! I2( 1$ *om%ound di#idends in 'ears1-9 at (1 and discount each back to the %resent$ 4$ *om%ound 'ears 9 di#idend b' the normal (ro&th rate .( 4/ to (et D: and use OD: G .K-(4/P to find the %rice of the stock in 'ear 9$ =$ Discount the %rice back to the %resent$ 9$ Sum the discounted di#idends and the discounted terminal #alue to arri#e at the intrinsic #alue of the stock$

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Intrin ic 2alue G "2 o! .ivi.en. H "2 o! terminal 6rice

6sin( the abo#e )ulti%le Aro&th Formula the Intrin ic 2alue o! MCB &as calculated as R > &-2>?9 6er 7are>

Intrin ic 2alue
R > &-2>?9 6er 7are

Current Mar#et "rice %02I0=I09'

R > &=&>0+ 6er 7are

Overvalue. I Un.ervalue.
Un.ervalue.

Secon. 1ay to Calculate Intrin ic 2alue :it7out u in5 .ivi.en.

1arren Bu!!etJ Mo.el !or calculatin5 intrin ic value(

>arren Buffett hasnQt e3actl' %ublished his formula for &hat he calls the intrinsic #alue of a com%an', but he has dro%%ed a number of hints$ He a%%arentl' multi%lies estimated future earnin(s b' a confidence mar(in bet&een zero and a hundred %ercent .a bird in the bush bein( &orth 2$: birds in the hand, and all thatR bush birds are the earnin(s 'ou ho%e for, and hand birds are the earnin(s 'ouQre confident &ill materialize/$ He then com%ares these %robable earnin(s &ith somethin( he has total confidence in, b' usin( discount rate &hich is calculated b' e3%ected (ro&th rate formula same as in the multi (ro&th model$ ,n calculator form it looks like thisE

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1arren Bu!!etJ Calculator to !in. Intrin ic 2alue o! any toc# :it7out u in5 0ivi.en. (
Earnin5 -arnin(s %er share .last 14 months/E /ro:t7 A um6tion -arnin(s are e3%ected to (ro& at a rate of for the ne3t
1 14.48

15.32

? annuall'

'ears,
12.13

before le#elin( off to an annual (ro&th rate of

? thereafter$

Con!i.ence Mar5in Ho& confident are 'ou that these e3%ected future earnin(s &ill reall' materializeS 0i count Rate Best a#ailable return that 'ou ha#e 122? confidence in .like a Treasur' bond/E
20.31 90

Re ult Stock Kalue %er shareE B

160.81

SourceE htt%EGG&&&$mone'chim%$comGarticlesG#aluationGbuffettTcalc$htm

This calculator doesnQt use fancier math than the ori(inal one did$ ,ts ad#anta(e is that it forces 'ou to be e3%licit about 'our earnin(s e3%ectations$ ,t also automaticall' %ro#ides 'ou &ith a hard-headed in#estment strate('E al&a's in#est in (o#ernment bonds, unless 'ou can find somethin( else 'ou are confident &ill 'ield more cash$ 6sin( the abo#e >arren Buffet0s formula the Intrin ic 2alue o! MCB &as calculated as R > &,0>)& 6er 7are> Intrin ic 2alue R > &,0>)& 6er 7are
31

Current Mar#et "rice %02I0=I09' s$ 191$2: %er share

Overvalue. I Un.ervalue. 6nder#alued

Analy i a9out Intrin ic value (

Theoreticall', &hen the intrinsic #alue of a stock is (reater than the market %rice of that stock then the stock is said to be Uunder#alued0 in the market and should be bou(ht as future %rice is e3%ected to rise$ 7n the other hand if the intrinsic #alue of the stock is lo&er than the market %rice then the stock is said to be Uo#er#alued0 and should be sold as future %rice is e3%ected to fall$ ,n our case both the methods ha#e sho&n ,ntrinsic Kalue of stock is (reater than the current market %rice of share &hich means the stock #alue is under#alued than its ori(inal #alue$ As )*B0s market %rice is under#alued its stock should be 9ou57t in order to make future ca%ital (ains &hich mean &e should take Lon5 "o ition in the market for the stock of )*B$

4ec7nical Analy i (
ANALFSIS ON 43E S4OCKS O@ MUSLIM COMMERCIAL BANK K MO2IN/ A2ERA/ES(

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SourceE htt%EGGin#estin($business&eek$comGresearchGstocksGchartsGcharts$as%Ss'mbolM)*B$KA

The abo#e chart sho&s the three 'ear mo#ement in stock %rice of )uslim *ommercial Bank from )arch 422; to Feb 4228$ A 122-da' )o#in( A#era(e, 422-da' )o#in( A#era(e and a :2da' )o#in( A#era(e ha#e been constructed in order to see &hether the current %rice trend is fa#orable or not$ Theoreticall' if the stock %rice falls belo& the mo#in( a#era(es then it is %referable to sell the stock as future %rice is e3%ected to fall$ 7n the other hand, if the %rice rises abo#e the mo#in( a#era(es then it is %referable to bu' the stock as future %rices are e3%ected to rise$ The stock %rice of Muslim Commercial Bank has been on a risin( trend since the end of A%ril, 422; till the end of A%ril, 4225$ At that time Stock Prices &ere hi(h than all the mo#in( A#era(es &hich therefore is a si(nal for in#estors to bu' the stock but &hen the floor &as im%osed in 4225 on the stock market of Pakistan to %re#ent the stock %rices from a drastic do&nfall because stock %rices &ere o#er#alued at that time$ >hen the floor &as u%lifted and re(ular transactions started a(ain the %rices &ent do&n drasticall' and crossed all the mo#in( a#era(es and &ent do&n to the bottom le#el$ But after a fe& da's &hen stabilit' came in the market Prices are (oin( to rise u% a(ain because all the %rices &ere at that time &ere under#alued and the' are still under#alued but &ith a lesser amount$

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34

ANALFSIS ON 43E S4OCKS O@ MUSLIM COMMERCIAL BANK K BOLLIN/ER BAN0S(

SourceE htt%EGGin#estin($business&eek$comGresearchGstocksGchartsGcharts$as%Ss'mbolM)*B$KA

The abo#e chart sho&s the three 'ear mo#ement in stock %rice of )uslim *ommercial Bank from )arch 422; to Feb 4228$ Bollin(er Bands &ith a 4$2 Standard De#iation .SD/ ha#e been constructed in order to anal'ze the stock %rice mo#ement$ Aenerall' &hen the stock %rice touches the lo&er band, it is %referable for in#estors to bu' the stock of the com%an'$ 7n the other if the stock %rice is near or touches the u%%er band, then it is %referable for in#estors to sell the sock as future %rices are e3%ected to fall$ As the stock %rice of )uslim *ommercial Bank &as near the lo&er band since A%ril last 'ear and crossed o#er it in "anuar' 4228, this is a si(n for in#estors to bu' the stock of the com%an'$

35

@ORECAS4 E CRI4ICAL ANALFSIS From 4221-422< Pakistan0s o#erall econom' &as %erformin( #er' &ell$ Pakistan econom' &as (ro&in( at the rate of the <?$ Bankin( sector of an' countr' %la's a si(nificant role in the econom'$ ,t influences and facilitates man' different and incor%orated economic acti#ities Due to the o#erall healthier economic %icture of the countr' Pakistan bankin( sector %erformed #er' &ell$ 7ne of the %rime reasons of the (ro&th in bankin( sector of Pakistan &as the in#estment friendl' (o#ernment %olicies$ The SBP issued ne& licenses to the banks for o%enin( u% the ne& setu% in the countr'$ Some of the mer(ers took %lace due to the increase of ca%ital re@uirement for banks b' the SBP$ 7ther reasons for the si(nificant (ro&th in bankin( sector &ere that little consumerization in econom' started$ Peo%le started to consume more$ So the banks started the consumer bankin( &hich includes car financin(, home financin(, %ersonal loans, loans for the home %roducts etc$ This is one of the im%ortant reasons for stead' (ro&th in bankin( sector$ ,n the 'ear 4225 the banks in Pakistan faced the %roblem of ti(ht li@uidit' but re(ardless of that Pakistanis banks are standin( on stron( toes due to the strict re(ulations of SBP like * , S+ $ e(ardless of the &orld financial crisis Pakistani bankin( s'stem is safe because it is free from *ollateralized lendin( s'stem$ Co& come on to the Stock market of Pakistan and see its relation &ith the stock %rice of )*B$

*om%ared to the %erformance of the stock market from Au(ust 4<th 4225 &hen the floor of 8,199 %oints &as im%osed and most tradin( came to a sto%, the current le#el, althou(h around <222 %oints, indicates that there is some amount of acti#it' takin( %lace and the market is in the %rocess of reco#er'$ >hen the Floor &as e#entuall' remo#ed on December 1: th 4225, KS--122 inde3 fell b' =,=44 %oints$ Then in "anuar' tradin( acti#ities (raduall' sho&ed some im%ro#ement$ Furthermore, durin( the month of Februar' throu(h to )arch there has been health' bu'in( takin( %lace as the KS--122 ,nde3 has been (raduall' (ainin( %oints this is also su%%orted b' the increase in the #olume of tradin($

36

The reason for the im%ro#ement in the %erformance of the stock market is reflected b' im%ro#ement in the share %rices of man' com%anies includin( )*B$ Furthermore, the Fundamental and Technical anal'sis conducted in the %re#ious %a(es both %ut for&ard the same decision re(ardin( in#estment in )*B stock$ This decision is to bu' the stock of )*B as its %rice is likel' to rise in the future$ The reasons su%%ortin( this decision include increasin( trends in Profit )ar(ins and -arnin(s %er Share .-PS/ of the com%an'$ Furthermore )*B di#idend %a'out ratio has been on the rise (i#in( another si(nal to %otential in#estors to bu' its share$ The intrinsic #alue calculation also sho&ed that )*B0s share %rice is under#alued in the market and is most likel' to rise$ +ast but not the least the technical anal'sis charts also (i#es a bu' si(nal to in#estors$ ,t should be ke%t in mind that an in#estor can conduct as man' %recautionar' tests as %ossible in order to di#ersif' the risks of in#estin(R ho&e#er, he or she cannot com%letel' (et rid of the risks$ Some risks are di#ersifiable but others are not$ Therefore, althou(h are current anal'sis of )*B sho&ed that its stock ma' 'ield ca%ital (ains for those &ho in#est in it, this notion is not 122? accurate$ Also, kee%in( in mind that due to the %olitical and economic instabilit' in Pakistan, the stock market0s %erformance and )*Bs share %rice can be si(nificantl' be affected$

CONCLUSION E RECOMMEN0A4ION ,n conclusion &e &ould like to sa' that currentl' )*Bs stock seems to be a %rofitable one to in#est in$ This decision is su%%orted b' the thorou(h Fundamental and Technical Anal'sis$ )uslim *ommercial Bank is a financiall' stron( com%an' and its %ast ! recent %erformance sho&s fa#orable trend in %rices &hich ma' (i#e in#estors an o%%ortunit' to make ca%ital (ains b' bu'in( its stock or b' takin( lon( %ositions for their stocks in the market$

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