2009
Final Project
MUSLIM
Section - D COMMERCIAL
BANK
Abdul Ahad Khan, Ahmed Shaffi, Areej Tahir, Faraz
Bokhari, Hassan Riaz & Sana Javed.
Executive Summery
The aim of this project was to prepare a stock valuation report for a company and to analyze
whether it would be favorable for investors to buy its shares considering the current economic
situation in the worlds in general and in Pakistan in particular.
The following research has been done on Muslim Commercial Bank Ltd. This report includes a
thorough analysis of the banking industry which is currently characterized as being one of
the highest growing and best performing sectors of Pakistan.
In order to determine whether it would be profitable for investors to buy the stock of MCB, we
conducted, in depth Fundamental and Technical analysis. The fundamental analysis includes the
trends in various financials of the company such as sales, profits etc. Furthermore this analysis
includes a detail ratio analysis which further provides insight into the performance of the bank.
Also the intrinsic value of MCB was calculated in order to determine whether its price was over
or under stated in the market. The technical analysis includes studying the price trend of MCB
over the past few years and with the help of moving averages and Bollinger bands the decision to
buy or sell MCB stock was made.
After conducting the fundamental and technical analysis, it was concluded that it would be
favorable for investors to buy the stock of MCB. The reasons supporting this decision include
increasing trends in Profit Margins and Earnings per Share (EPS) of the company. Furthermore
MCB’s dividend payout ratio has been on the rise giving another signal to potential investors to
buy its share. The intrinsic value calculation also shows that MCB’s price is undervalued in the
market and is most likely to rise. Last but not the least the technical analysis charts also gives a
buy signal to investors.
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Economic Analysis of Pakistan
Equity Market (KSE 100):
KSE 100 index had been doing fantastic from the year 2000 to 2008. Significant capital gains
were seen as the index reached to its highest levels on April 18, 2008 of 15,676 points. However
the glory was short lived. After the removal of the high ranking judges in Pakistan by the
Musharraf regime, things started to take a change for the bad. The stock market dropped below
10,000 points and investors’ confidence was highly dismantled. Pakistan has witnessed alarming
levels of capital flight since the new government took office. It was right after Benazir Bhutto’s
assassination that foreign investors began to pull out their capital from Pakistani markets. But
mainly it has been due to the devaluation of the Pakistani rupee against the US dollar.. On
August 28, 2008 directors of Pakistan’s main stock exchange (The Karachi Stock Exchange)
imposed a floor at 9,144 points hence trying to stop ant more capital flight from the country.
Later when the markets were reopened a drop in the KSE 100 index was still seen and it reached
just over 5,000 points as the markets started to stagnate and maintain its position between 5,000
and 6,000 points. The market was highly unstable at the start of 2009 till today (4 th April 2009).
The main reason being the political unrest in the country. After the announcement by the
government to restore the judges of the higher courts of Pakistan the stock market has gained
confidence once again. The stock market rose from 5750 on 13th march to 7432 points on 4th
April, 2009. This is the first time in months that the KSE 100 index has crossed the 7000 point
barrier and still managed to float over it. With the political situation stabilizing the future of KSE
100 seems bright and rewarding for the investors.
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Interest Rates and Inflation
Interest rate:
The interest rates have been significantly higher as compared to previous years. The interest rate
data from the market dashboard that was maintained during the 3 months time shows that the
long term KIBOR rate has decreased from 16.26% to 14.74% over the 3 months. More over the
short term KIBOR rates also saw a decreasing trend.1 month KIBOR rate has decreased from
14.06% in January 3, 2009 to 12.72% in March 27, 2009.
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Inflation:
Pakistan economy is facing mounting pressures from ever‐rising inflation and food prices.
Inflationary pressures have been seen across the globe, the inflation rate as measured by the
changes in Consumer Price Index (CPI) stood at 24.4 percent during the period July‐December
2008 as against 8.0 percent in the comparable period last year. The food inflation was estimated
at 31.2 percent and non‐food 19.2 percent, against 11.6 percent and 5.4 percent in the
corresponding period of last year.
Food inflation is quite high due to the increase in prices of edible oil, pulses, rice, milk, sugar,
poultry, meat, wheat, wheat flour, fresh vegetables and fruits. The non‐food inflation is also
high because of hike in petroleum prices leading to spurt in transport group, fuel and lighting.
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GDP and Economic Indicators
Pakistan’s economy has shown great resilience against shocks of very high intensity. Domestic
factors like heightened political tensions, an unstable law and order situation, supply shocks,
coupled with external factors like a worsening of international financial crisis, and an
unprecedented rise in global food and energy prices tested the strength of economic
fundamentals but Pakistan’s economy grew robustly at 5.8 percent in 2007-08, as against 6.8
percent last year and this year’s target of 7.2 percent, the economic growth in 2007-08 appears
satisfactory. The economy has grown at an average rate of 6.6 percent per annum for the last six
years which provides a source of optimism that regaining macroeconomic stability. Following
graph shows the variability in the GDP growth rate over the years from 2000-2008.
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WORLD OVERVIEW
World Indices:
The recession of 2008-2009 did not only change the economic structure but the financial
scenario as well. Little was known that the deficit would have such a huge negative impact that
would travel to all parts of the world. It didn’t take long for the world’s banking system to
collapse after the collapse of the Lehman brothers on 15th September 2008. The effect could be
described as the domino effect which certainly was not expected. The stocks markets also fell
down with it. The investment banks also disappeared since they couldn’t bear with the losses
they had to face. The global market faced a lot of liquidity problems. It is estimated that almost
US$27 trillion or over 40% was washed away from the global stock markets.
The dash board maintained over the 3 months showed that the major stock markets in the world
showed bearish trend in this time period (January 3, 2009 to March 27, 2009). NASDAQ, S&P,
Nikkei, FTSE and DOW Jones all showed declining indexes as shown by the figure below.
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A fluctuation in the values of individual indices is shown as follows:
CHART1
Dow Jones
FTSE
Nassdaq
NIKKEI
S&P
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Interest Rates and Inflation
Interest Rates:
There has been a tremendous decrease in the US funds rates in the recent months following the
global liquidity crunch. The interest rate policy of the USA is arrived at zero interest rate policy.
Fed Funds Rate is Target from ZERO to 0.25%. The lowering of the Fed funds rates is to
encourage investors to borrow funds and to help the economy to get moving again.
The average current interest rate comes out to be 4%. From the above table we conclude that the
Poland have the exact interest rate of 4%. Norway has the interest rates of 2.50%. Korea has
3.00%. New Zealand 3.00%. Whereas the interest rates of the developed countries like United
Kingdom is less than 1% which is 0.50%. United States 0.25%, Canada 0.05%. Sweden has
exactly 1%. The following data shows different interest rates prevailing in major economies of
the world.
Countries Interest rates
Egypt 10.50%
South Africa 10.50%
Australia 3.25%
China 5.31%
Hong Kong SAR 0.50%
India 5.50%
Japan 0.10%
Korea, Republic of 3.00%
New Zealand 3.00%
Taiwan 1.50%
Iceland 17.00%
Norway 2.50%
Poland 4.00%
Slovakia 2.50%
Sweden 1.00%
Switzerland 0.25%
United Kingdom 0.50%
Turkey 10.50%
Canada 0.50%
United States 0.25%
Brazil 11.25%
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Inflation:
Inflation in all parts of the world rocketed skywards after the increase in oil prices. The oil prices
went to $146 per barrel in July 2008, due to which inflationary pressures were seen in all parts of
the world. However the oil prices did decrease in 2009, but the inflationary pressures are reacting
slowly to the decrease in oil prices.
World inflation rate over the years form 2000-2007 was stable until the global financial crises
hit, in the year 2008 there is the all time inflation of the 21st century. Global economy is
recovering very slowly in 2009 with inflation rates coming down slowly, if this global crisis is
not handled by the institutions around the world the inflation will be difficult to control.
Commodities Currency and GDP
Commodities:
The commodity prices has shown an increasing trend with the start of the 21 st century, the largest
increase was seen in the year 2008 where the prices were all time high because of the global
economic crises. The World Bank has forecasted that these prices will come down in year 2009
because there demand will fall
The 3 months data collected in the market dashboard shows that the oil prices have again risen
slightly in this time period as shown in figure below.
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The rising inflation also reacted on the Global Gold prices, making the Gold prices to go up as
well. In the past 3 months Gold prices rose from $879 on January 4, 2009 to $925.3 on March
27, 2009.
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Currencies:
Despite the depreciation of the US dollar in 2008 it managed to gain strength at the start of 2009
and maintained its strong position. Pak Rupee/ USD rate rose from $60 to almost $80 at the start
of 2009. However the exchange rate has been well managed from January 2009 to march 2009
keeping the USD in the range of 70-81.
Moreover the USD gained strength over other world currencies as well. USD value appreciated
as compared to the Japanese Yen in the first 3 months of 2009. We can see from the figure below
that the exchange commission of Pakistan has succeeded in maintaining a stable exchange rate as
compared to other currencies.
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World GDP
Overall the world GDP increased in 2008 increased by 44.5% ($54 trillion to $78 trillion). The
global economies like United States, United Kingdom and European Union all showed a positive
trend. In the year 2009 IMF have predicted that due to global financial crises the world GDP will
only grow by 2.2% which is a huge decline percentage wise as compared to year 2008
The major economies of the world and their GDP’s
2007 (trillions) 2008 (trillions)
World 54.34 World 78.360
United states 13.811 United states 14.33
Euro zone 12.179 Euro zone 18.930
Japan 4.376 Japan 4.844
Germany 3.297 Germany 3.818
China 3.280 China 4.222
UK 2.727 UK 2.787
France 2.562 France 2.987
Italy 2.107 Italy 2.399
Company of choice and reasons of selection?
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Introduction
“MCB Bank Ltd”, formerly known as Muslim Commercial Bank, was the first bank in Pakistan
to be privatized following the privatization policies outlined by the government of Prime
Minister Shaukat Aziz.
After Mr. Mian Mansha took over as Chairman, the bank revised all of its previous policies,
aiming towards higher profits as he himself is an industrialist and those instincts are the driving
force behind his zealous efforts for the financial well being of the organization. Thus, the bank
under his chairmanship has improved a lot, aiming to provide quality services to its clients and
standing up to the intense competition in the banking sector. They now understand that cutting
edge technology is vital for any modern organization. MCB continuously designs products and
services that harness the best technology for the sole benefit of its customers. It is all concerned
with changing the conservative and anti progressive slant adopted by the previous management
at MCB.
MCB is one of the leading banks of Pakistan with a deposit base of about Rs. 230 billion and
total assets of around Rs.300 billion. Incorporated in 1947, MCB soon earned the reputation of a
solid and conservative financial institution managed by expatriate executives. In 1974, MCB
was nationalized along with all other private sector banks. This led to deterioration in the quality
of the Bank’s loan portfolio and service quality. Eventually, MCB was privatized in 1991.
During the last fifteen years, the Bank has concentrated on growth through improving service
quality, investment in technology and people, utilizing its extensive branch network, developing
a large and stable deposit base and managing its non-performing loans via improved risk
management processes.
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MCB Today:
MCB today is one of the leading banks of Pakistan with a deposit base of about RS. 230 billion
and total assets of around Rs.300 billion. During the last fifteen years, Bank has concentrated on
growth through improving service quality, investment in technology and people, utilizing its
extensive branch network, developing a large and stable deposit base and managing its non-
performing loans via improved risk management processes.
After privatization, MCB is now in a consolidation stage designed to lock in the gains made in
recent years and prepare the groundwork for the future growth. The bank has restructured its
asset portfolio and rationalized the cost structure in order to remain a low cost producer.
MCB now focuses on three core businesses namely Corporate, Commercial and Consumer
Banking. Corporate clientele include public sector companies as well as large local and multi
national concerns. MCB is also catering to the growing middle class by providing new asset and
liability products. The bank provides 24 hour banking convince with the largest ATM network in
Pakistan covering 30 cities with over 413 ATM locations. The Bank’s Rupee Traveler Claques
have been market leaders for the past six years and have recently launched their Gift Cheque
Scheme.
Vision Statement
Challenging and Changing the Way you Bank.
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Mission Statement
To become the preferred provider of quality financial services in the country
with profitability and responsibility and to be the best place to work.
REASONS FOR CHOOSING
The basic reasons for choosing this organization:
Banking sector is a very growing sector
One of the top 5 banks in Pakistan
Innovative products and services
Vast network with 35 plus branches
Expanding organization
LEADING FIRM: MCB is the leader of local commercial bank supported by its increasing
trends of revenue, all over Pakistan.
INNOVATIVE: It was the first Bank which introduced ATM Technology in Pakistan.
VAST NETWORK: All over Pakistan, it has most ATM Machines, and most Branches
available, and now the network transaction can be done through mobile phones as well.
EXPANDING ORGANISATION: Not only in Pakistan, it has come up with an idea of
introducing shares in LSE (London stock exchange).
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Competitor Analysis
There are 39 banks currently operating in Pakistan. However, there are only 4 competitors of
MCB. These include Bank Alfalah, UBL, NBP and HBL. The competitor analysis has been done
using graphs and charts in the following pages. The description of 2 banks is also given below.
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Growth Prospects:
From the last year Pakistan has been facing serious political instability and challenges.
However, after the reinstatement of the deposed judges, lifting of governor rule in Punjab,
reinstatement of Sharif’s government in Punjab and move towards reconciliation of two major
political parties Pakistan is once again on the path of political stability. As effect of this, Pakistan
stock market has also started going on positive trend, showing a slightly bullish trend. Hopefully
this political stability will affect every industry especially the banking sector in positive way.
Pakistani banking sector is still growing but on medium pace as compared to previous growth in
recent years. In 2008 Pakistan banking sector showed a growth of 7%. Especially in Islamic
banking there are more growth prospects.
MCB Bank is a leading commercial bank of Pakistan. It is among the five largest banks of
Pakistan. These banks dominate the banking structure of Pakistan. In the previous years MCB
has shown a significant growth. It is a first Pakistani organization which was listed on London
stock exchange. In 2008 it received a euro money award for best bank in Asia 2008. Future
prospects for MCB are very bright. MCB has a shown 43% growth in FY 2007.With SBP raising
the upper limit of retail exposure to PkR75mn (not be more than 2% of gross retail portfolio of
the bank) in case of consumer loans and small business loans, MCB has increased its penetration
this high margin segment. Despite the challenges of declining demand & rising NPLs due to
higher interest rate vulnerability and late entry along with established brand equity of existing
players like UBL, Consumer financing continues to be a profitable niche for MCB. MCB is in
process of launching more innovative products which will help MCB bank in growing more. As
the size of MCB is very large and it comes under the five largest banks there are much chances
of growth for MCB due to its strong muscles.
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Past, Present and Future Time series analysis
Average
RS. 000 Annual 2002 2003 2004 2005 2006 2007 2008
Growth
Revenue 27% - - 17,725 33,073 45,130 38,305 45,978
Profits (AT) 43% 1,755 2,230 2,540 8,922 12,142 16,441 15,323
Total
10% - - 259,173 298,776 342,108 355,353 385,153
Liabilities
Total Assets 11% 235,139 272,324 259,285 298,777 342,108 410,486 445,285
Share
Capital & 38% 6,314 7,726 9,393 17,883 35,657 45,414 43,055
Reserves
Expenses 20% - - 9,492 9,346 11,085 13,937 20,103
EPS 24% 6.6 7.3 7.5 20.9 22.2 24.3 24.5
Spread - 16% 10% 7% 10% 12% 12% 10%
Deposits 10% 182,706 211,511 219,966 229,345 257,462 292,098 330,245
Advances 6% 182,706 211,511 219,966 229,345 257,462 258,959 262,508
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Revenues and Profits:
Above chart shows the trend of net income or profit after tax over the period of five years. In
2004, profit after tax amounted to Rs 2432 billion which drastically increased to the level of
8,922 billion in 2005. Net income was 12,142 billion in 2006 and went up to 15,266 billion in
2007. In 2008, the growth rate remained very low and remained almost stagnant at 15,323 billion
rupees. It shows a very steady and healthy growth over the years.
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Market share:
Overall the banking industry of Pakistan comprises of both nationalized and private banks. In
terms of both loans and deposits, 76 % of the banking sector comprises of private banks. This is
primarily because of the privatization policy adopted by the government. The remaining 24% are
partially or wholly owned by the state .in the private sector both local and foreign banks operate.
94 % are local banks where as foreign bank participation is only up to 6%.
Among the local banks, 90 % of the share is distributed among the top 5 banks which are
1. Muslim Commercial Bank
2. National Bank of Pakistan
3. United Bank Limited
4. Habib Bank Limited
5. Bank Alfalah.
These 5 banks form 55% of the whole banking sector of Pakistan and the stability of the sector is
highly depended on the smooth running of these five banks. More over these banks are the trend
setters in the overall banking sector. Among these top five banks, more than 35% of the share is
with Muslim Commercial Bank.
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SWOT analysis
STRENGTHS WEAKNESSES
1. MCB has the highest ROE amongst its 1. It has an increasing rate of NPLs (from
competitors 4.67% to 6.69%).
2. MCB has the highest Net Interest Margin 2. Its EPS growth rate is decreasing over the
compared to HBL, NBP, etc. past years.
3. It has lowest average deposit rates. 3. Does not have international recognition.
4. It has a high consumer loan growth rate. 4. Though its investments are increasing but
5. It has an extensive branch network 40% are confined to investment in
6. It has less exposure to textile sector as government securities only. This reduces its
compared to peer banks. returns.
7. It has AA+ rating for long term and A1+ for
short term by PACRA showing high credit
quality and low credit risk.
OPPORTUNITIES THREATS
1. MCB can focus on consumer banking to 1. MCB has threat from banks like UBL which
increase yields has 67% low cost deposit base
2. It can work to improve the conditions of 2. It also has threats from banks including NBP
NPLs and UBL that are increasing their branch
3. During recession, it can take advantage of network to encourage deposit raising.
decreased Cash Reserve Requirement. 3. Threats from Government if it raises CRR
4. It can expand its Islamic banking. and SLR.
4. It has threats from Al-falah and UBL as far
as Car Financing is concerned
5. Similarly NBP is a threat in house financing.
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Intrinsic Value:
We used the Multiple Growth Model for the calculation of intrinsic value of Muslim
Commercial Bank and compared it with the current prevailing market price (as at 02 nd April,
2009). The details are as follows:
Year 2004 2005 2006 2007 2008
DPS 1.26 2.38 4.8 4.73 9.83
No of shares in Five Years:
650,000,000 = 2004
650,000,000 = 2005
650,000,000 = 2006
1,000,000,000 = 2007
1,000,000,000 = 2008
Dividends paid in the last Five Years:
818,306,000 = 2004
1,545,483,000 = 2005
3,122,510,000 = 2006
4,728,496,000 = 2007
9,834,181,000 = 2008
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Estimation of Expected Growth Rate by FC – 100 = 12.48 %
Dividend Payout Ratio (d) = 64.2%
ROE = .30
Annual Growth Rate (g1) = ROE (1 – d)
= .30 (1-0.642) = 10.13%
Required Return on the stock =
Required Return on the stock = 20.31 %
Annual Growth Rate (g1) 12.48 %
Expected Growth Rate (g2) 10.13%
Required Return on the stock 20.31 %
Base year Dividend per Share (2004) Rs. 1.26 per share
Current Dividend per Share (2008) Rs. 9.83 per share
Method for Calculation of IV:
1. Compound dividends in years1-4 at g1 and discount each back to the present.
2. Compound years 4 dividend by the normal growth rate (g 2) to get D5 and use [D5 / (K-g2)] to
find the price of the stock in year 4.
3. Discount the price back to the present.
4. Sum the discounted dividends and the discounted terminal value to arrive at the intrinsic
value of the stock.
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Intrinsic Value = PV of dividends + PV of terminal price
Using the above Multiple Growth Formula the Intrinsic Value of MCB was calculated as Rs.
172.39 per share.
Intrinsic Value Current Market Price (02/04/09) Overvalued / Undervalued
Rs. 172.39 per share Rs. 141.05 per share Undervalued
Second Way to Calculate Intrinsic Value without using dividends
Warren Buffet’s Model for calculating intrinsic value:
Warren Buffett hasn't exactly published his formula for what he calls the intrinsic value of a
company, but he has dropped a number of hints. He apparently multiplies estimated future
earnings by a confidence margin between zero and a hundred percent (a bird in the bush being
worth 0.5 birds in the hand, and all that; bush birds are the earnings you hope for, and hand birds
are the earnings you're confident will materialize). He then compares these probable earnings
with something he has total confidence in, by using discount rate which is calculated by expected
growth rate formula same as in the multi growth model. In calculator form it looks like this:
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Warren Buffet’s Calculator to find Intrinsic Value of any stock without using
Dividends:
Top of Form
Earnings
Earnings per share (last 12 months):
$
15.32
Growth Assumptions
14.48
Earnings are expected to grow at a rate of % annually
1
for the next years,
12.13
before leveling off to an annual growth rate of % thereafter.
Confidence Margin
How confident are you that these expected future earnings will really materialize? 90
%
Discount Rate
Best available return that you have 100% confidence in (like a Treasury bond): 20.31
%
Results
Stock Value per share: $ 160.81
Source: http://www.moneychimp.com/articles/valuation/buffett_calc.htm
This calculator doesn't use fancier math than the original one did. Its advantage is that it
forces you to be explicit about your earnings expectations. It also automatically provides you
with a hard-headed investment strategy: always invest in government bonds, unless you can
find something else you are confident will yield more cash.
Using the above Warren Buffet’s formula the Intrinsic Value of MCB was calculated as Rs.
160.81 per share.
Intrinsic Value Current Market Price (02/04/09) Overvalued / Undervalued
Rs. 160.81 per Rs. 141.05 per share Undervalued
share
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Analysis about Intrinsic values:
Theoretically, when the intrinsic value of a stock is greater than the market price of that stock
then the stock is said to be ‘undervalued’ in the market and should be bought as future price is
expected to rise. On the other hand if the intrinsic value of the stock is lower than the market
price then the stock is said to be ‘overvalued’ and should be sold as future price is expected to
fall. In our case both the methods have shown Intrinsic Value of stock is greater than the current
market price of share which means the stock value is undervalued than its original value. As
MCB’s market price is undervalued its stock should be bought in order to make future capital
gains which mean we should take Long Position in the market for the stock of MCB.
Technical Analysis:
ANALYSIS ON THE STOCKS OF MUSLIM COMMERCIAL BANK – MOVING
AVERAGES:
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Source: http://investing.businessweek.com/research/stocks/charts/charts.asp?symbol=MCB.KA
The above chart shows the three year movement in stock price of Muslim Commercial Bank
from March 2006 to Feb 2009. A 100-day Moving Average, 200-day Moving Average and a 50-
day Moving Average have been constructed in order to see whether the current price trend is
favorable or not. Theoretically if the stock price falls below the moving averages then it is
preferable to sell the stock as future price is expected to fall. On the other hand, if the price rises
above the moving averages then it is preferable to buy the stock as future prices are expected to
rise. The stock price of Muslim Commercial Bank has been on a rising trend since the end of
April, 2006 till the end of April, 2008. At that time Stock Prices were high than all the moving
Averages which therefore is a signal for investors to buy the stock but when the floor was
imposed in 2008 on the stock market of Pakistan to prevent the stock prices from a drastic
downfall because stock prices were overvalued at that time. When the floor was uplifted and
regular transactions started again the prices went down drastically and crossed all the moving
averages and went down to the bottom level. But after a few days when stability came in the
market Prices are going to rise up again because all the prices were at that time were undervalued
and they are still undervalued but with a lesser amount.
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ANALYSIS ON THE STOCKS OF MUSLIM COMMERCIAL BANK – BOLLINGER
BANDS:
Source: http://investing.businessweek.com/research/stocks/charts/charts.asp?symbol=MCB.KA
The above chart shows the three year movement in stock price of Muslim Commercial Bank
from March 2006 to Feb 2009. Bollinger Bands with a 2.0 Standard Deviation (SD) have been
constructed in order to analyze the stock price movement. Generally when the stock price
touches the lower band, it is preferable for investors to buy the stock of the company. On the
other if the stock price is near or touches the upper band, then it is preferable for investors to sell
the sock as future prices are expected to fall. As the stock price of Muslim Commercial Bank
was near the lower band since April last year and crossed over it in January 2009, this is a sign
for investors to buy the stock of the company.
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FORECAST & CRITICAL ANALYSIS
From 2001-2007 Pakistan’s overall economy was performing very well. Pakistan economy was
growing at the rate of the 7%. Banking sector of any country plays a significant role in the
economy. It influences and facilitates many different and incorporated economic activities Due
to the overall healthier economic picture of the country Pakistan banking sector performed very
well. One of the prime reasons of the growth in banking sector of Pakistan was the investment
friendly government policies. The SBP issued new licenses to the banks for opening up the new
setup in the country. Some of the mergers took place due to the increase of capital requirement
for banks by the SBP. Other reasons for the significant growth in banking sector were that little
consumerization in economy started. People started to consume more. So the banks started the
consumer banking which includes car financing, home financing, personal loans, loans for the
home products etc. This is one of the important reasons for steady growth in banking sector. In
the year 2008 the banks in Pakistan faced the problem of tight liquidity but regardless of that
Pakistanis banks are standing on strong toes due to the strict regulations of SBP like CRR, SLR.
Regardless of the world financial crisis Pakistani banking system is safe because it is free from
Collateralized lending system. Now come on to the Stock market of Pakistan and see its relation
with the stock price of MCB.
Compared to the performance of the stock market from August 27th 2008 when the floor of 9,144
points was imposed and most trading came to a stop, the current level, although around 7000
points, indicates that there is some amount of activity taking place and the market is in the
process of recovery. When the Floor was eventually removed on December 15 th 2008, KSE-100
index fell by 3,322 points. Then in January trading activities gradually showed some
improvement. Furthermore, during the month of February through to March there has been
healthy buying taking place as the KSE-100 Index has been gradually gaining points this is also
supported by the increase in the volume of trading.
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The reason for the improvement in the performance of the stock market is reflected by
improvement in the share prices of many companies including MCB. Furthermore, the
Fundamental and Technical analysis conducted in the previous pages both put forward the same
decision regarding investment in MCB stock. This decision is to buy the stock of MCB as its
price is likely to rise in the future.
The reasons supporting this decision include increasing trends in Profit Margins and Earnings
per Share (EPS) of the company. Furthermore MCB dividend payout ratio has been on the rise
giving another signal to potential investors to buy its share. The intrinsic value calculation also
showed that MCB’s share price is undervalued in the market and is most likely to rise. Last but
not the least the technical analysis charts also gives a buy signal to investors.
It should be kept in mind that an investor can conduct as many precautionary tests as possible in
order to diversify the risks of investing; however, he or she cannot completely get rid of the
risks. Some risks are diversifiable but others are not. Therefore, although are current analysis of
MCB showed that its stock may yield capital gains for those who invest in it, this notion is not
100% accurate. Also, keeping in mind that due to the political and economic instability in
Pakistan, the stock market’s performance and MCBs share price can be significantly be affected.
CONCLUSION & RECOMMENDATION
In conclusion we would like to say that currently MCBs stock seems to be a profitable one to
invest in. This decision is supported by the thorough Fundamental and Technical Analysis.
Muslim Commercial Bank is a financially strong company and its past & recent performance
shows favorable trend in prices which may give investors an opportunity to make capital gains
by buying its stock or by taking long positions for their stocks in the market.
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