First Capital Equities Limited (formerly known as First Capital ABN Amro Equities), is amongst the most prominent domestic brokerage houses in Pakistan. Incorporated in 1994, as a subsidiary of First Capital Securities Corporation, it has been providing financial services for the last 7 years.

It provides services such as: equity trading; equity research; and corporate finance. First Capital Securities Corporation's (FCSC) key business activities include providing corporate finance advisory services to public organizations and private sector companies, and providing interbank money market brokerage services to the financial institutions.

FCSC offers financial services through its various subsidiary companies: First Capital Equities Pakistan Limited, First Capital Investments Limited, First Capital Mutual Fund, and Shaheen Insurance Company Limited. As part of its international programme, FCSC recently acquired a strategic equity stake in Lanka Securities Limited, a leading securities company of Sri Lanka. FCSC also holds similar strategic equity interests in Pace (Pakistan) Limited and Bright Star (Pvt) Limited. It also invested and incubated a number of telecommunication businesses in and outside Pakistan which are organized under its WorldCall Telecommunication Group.

FCEL is currently operating through one principal place of business and 17 branches all over Pakistan. Subsequent to the year three new branches are under development phase and will operative in near future. FCEL has the local affiliate status of Auerbach Grayson (AGA), an international brokerage house based in USA with presence in about 100 different markets.

FINANCIAL PERFORMANCE (FY02-FY07) During FY07, company's profit before tax increased to Rs 408 million from Rs 265 million of FY06, registering a growth of 54%. Principal ascend in earnings has been contributed by an elating rise in brokerage revenue.

The company's principal revenue emanates from brokerage income supplemented by gain on listed securities (both realized and unrealized) and income on placements. The company has achieved its target of Rs 400 million brokerage income. Brokerage revenue has shown a rise of Rs 149 million, representing 53% growth compared to the corresponding year. Gain on listed securities (both realized and unrealized) have also contributed their part in the company's growth. During FY07, the company earned Rs 214 million from its stock market investments compared to Rs 145 million in the corresponding period, representing a growth of 47%.

The company's core activity of brokerage has increased manifolds over the years. Significant rise in brokerage income is a result of company's strategy of infrastructure development and widespread geographical presence. FCEL's local affiliate status of Auerbach Grayson (AGA), has also contributed significantly to increase its brokerage income. Appreciation in company's overall market share has significantly improved its profitability. Profit after tax has shown a growth of 52% since last year.

Overall ratio analysis reveals flat performance by the company with regard to profitability with both PAT and PBT declining slightly as a portion of revenues. Its share capital increased during the year, due to 100% rights issue in FY07. As a result FCEL's ROE showed a sharp decline in 2007. Moreover ROE declined more sharply than ROA due to lower proportionate increase in equity base than in assets base with the same numerator that is PAT.

Both revenues and expenses of FCEL showed a rise in FY07 but the income to expense ratio of FCEL has remained flat in 2007. This is mainly due to equal increase in expenses compared to that in revenues showing ability of FCEL able to maintain the expenses at the same level as the revenues.

The liquidity position, though decreased considerably after 2005, but improved slightly with current ratio rising to 1.46 in FY07 compared to previous year's 1.43 due to a 61% in CL compared to a 65% increase in its CA. Also, high current ratios of FCEL are mainly due to higher marketable securities (current asset) as FCEL is a security house. All the debt management ratios indicate FCEL's increased reliance on debt financing compared to equity financing after 2005.

D/E ratio has decreased in 2005 from 2004 but followed a declining trend in 2007. It has increased considerably in FY06 due to increase in staff benefit requirements and liabilities against REPO agreements. This is further confirmed by the long-term debt to equity ratio, which has declined in 2007, mainly due to decrease in long term financings.

D/A ratio also follows a trend similar to D/E till 2007 due to above-mentioned reasons. Just like the D/E it has increased sharply in 2006 and has shown sharp downturn in 2007. TIE ratio has plummeted in 2004 due to lower EBIT coupled with high financial charges in 2004. The declining trend continued till FY05. In 2006 the ratio recovered as EBIT increased. However, it declined again in FY07 due to increased financial costs. Hence one can say that FCEL needs to maintain its trend in improving its interest covering ability by further enhancing its EBIT.

FUTURE OUTLOOK Currently, the FCEL is striving for consistent growth in the revenue and profitability of the company by expanding brokerage operations through opening of new branches and controlling operating costs. It is also completing and reviewing its options to expand in the areas of Real Estate Investment Trust, Commodity Brokerage and Investment Finance Services, in addition to reviewing the options of raising funds through issue of securities by way of listing on KSE and/or Dubai Stock Exchange subject to completion of necessary corporate and regulatory approvals where required.

The company has also initiated to make investments in real estate properties to earn rentals and capital appreciation. These investment properties are still in the construction phase and shall start yielding returns in near future. This diversification will not only provide high returns but shall also sponsor sustainability in its earnings. Furthermore, positive movements in the capital market will also contribute to future growth potential. Hence one can maintain an overall positive outlook for the company.