FINANCIAL MARKETS

Commodity and Equity Trading – Report #2

Usman Ahmad– 20010021

Usama Ahmad Chaudhry – 20010020
Syed Ayad Ali - 20010030
Commodity
Follow up from last week’s trade
• Last week we bought Crude oil at $56.07 on 8th November 4:25 PM PST, in the hope that
the US-China talks will result in a trade agreement and reduction in tariffs, leading to higher
economic activity and demand for oil. This week it is running at $56.7 currently (15th
November 2:46 PM PST).
• Trade talks didn’t really materialize last week with US President Donald Trump declaring
that nothing was finalized as of yet. Due to the stagnation of talks, Oil prices didn’t go up
as much as expected.
• Secondly, US Crude oil inventory levels were at 2.2 million barrels compared to the
expectation of 1.65 million barrels1. Due to this higher than expected supplies, oil prices
were stifled and expected increase failed to materialize.
• Meanwhile, as expected Gold prices did drop from $1466 to almost $1450 during the week,
however rebounded to $1464 due to the trade deal not materializing as of yet.

This week’s trade

• First decision to sell oil at the current ask price of $56.75 (15th November 2:46 PM PST).
Thus, we actually made a profit of around $0.68 per unit. Refer to Exhibit A for the oil
price trend.
• Secondly, this week we will short gold at the current price of $1463.70 (15th November
2:46 PM), as we expect that its price will drop.
• Due to the lull in trade talk progression last week, Gold prices slightly came back up to
$1464 (had dropped to almost $1450 during the week). Refer to Exhibit B. However, the
latest news suggests some positive news from even the U.S governments side that the trade
deal is in its final stages2. With this, we believe that the trade talks will go through, and this
will cause the gold prices to plummet, as economic activity will increase, resulting in
investors putting their money into higher growth avenues.
• There has already been some significant development in the agricultural sector since
yesterday. China has lifted a ban on American poultry that began in 2015, and the US
Department of Agriculture has reciprocated.

Stock
Follow-up from Last Week’s trade
• We bought EFERT stock at Rs. 77.55 last week owing to its consistent performance over
the years. Currently the EFERT stock is being traded at Rs. 77.17 (15th November 2019
03:00 PST). Stock prices of EFERT was performing well during the week until 12th of
November. On this day the stock prices fell from Rs. 78.57 to Rs. 76.68 (2.4% decrease).
(Exhibit C shows trend of EFERT)

1
https://www.cnbc.com/2019/11/14/oil-markets-us-crude-stocks-in-focus.html
2
https://www.scmp.com/economy/china-economy/article/3037849/us-trade-adviser-kudlow-says-china-
trade-deal-final-stages
• Similar trend was observed with the stock prices of Fauji Fertilizer. On 12th of November,
stock prices of Fauji Fertilizer decreased from Rs.98 to Rs.95.75 (2.29% decrease). (Exhibit
D shows trend of Fauji Fertilizer)
• On 12th November, Pakistan Petroleum Limited (PPL), being the key supplier of natural
gas in Pakistan, has announced that they will be moving away from its primary business of
oil and gas exploration and shifting their focus to exporting Zinc and Lead. This change in
focus is due to decreasing reserves of oil and gas in Pakistan. This has created many
uncertainties for Fertilizer business as natural gas is the key raw material for the production
of Fertilizer3

This week’s trade

• For Stock a trade has been made in Engro Corporation Limited share at Stock Price of PKR
327.00 (11:50 am PST on 15/11/2019 with current trade volume of 725,400). The reasons
for this are mentioned below.
• Engro Corporation Limited holds a well-diversified portfolio of businesses including
Fertilizers, Energy, Chemical, LNG terminal and FMCG sectors in Pakistan. The
corporation has shown continuous growth and better performance of stock relative to the
index for over 01 year. Most of the businesses have shown growth in the past year and offer
attractive prospects in future. Refer to Exhibit E for its stock performance.
• Monthly, 3-monthly and 6-monthly stock performance figures (17.59,44.38,25.17%
growth respectively) also support the decision for trading in Engro Corporation Limited.
• In its 3-Q financial report, the firm has posted a profit. Some of the highlights from financial
report are stated below4

9M Performance 2019 2018 %Change

Net Revenues (PKR) 149.400B 114.643B 30.3%
Gross Profit (PKR) 44.489B 34.757B 28%
Profit before Taxes 33.382B 26.218B 27.32%
(PKR)
Net Profit (PKR) 21.886B 17.853B 22.6%
EPS(PKR) 22.61 17.27 30.92%
Dividend Yield 8.79% 6.43%

• The company board has recommended 3rd interim cash dividend of PKR 8 per share for
FY 2019, making the cumulative payout for 9M 2019 to PKR 23.0 per share5
• One potential threat is that in 2019 domestic market share has been lost by Engro Fertilizers
from 36% to 31% due to operation of LNG based Fertilizers plant and import in 2019.
Further decline in market share in coming months is also a threat. However, since the

3
https://www.brecorder.com/2019/11/13/543866/with-no-luck-in-petroleum-resources-pakistan-petroleum-
limited-to-diversify-into-other-minerals/
4
Engro Corporation Limited Financial Report 3Q-2019
5
Engro Corporation Limited Financial Report 3Q-2019
current domestic demands levels are lesser than the production and demand is expected to
be stable in the short term, the threat is not immediate.

Exhibit A – Oil Price trend

Exhibit B – Gold price trend

 Exhibit C – Stock Price of Engro Fert

Exhibit D – Stock Price of Fauji Fert

Exhibit E – Stock Performance of Engro Corporation vs the Index6

6
http://www.scstrade.com/stockscreening/SS_CompanySnapShot.aspx?symbol=ENGRO6