Stocks that ruled 2021

Fortune Shoes brought the biggest fortune for stock investors in the Dhaka Stock Exchange (DSE) in 2021.

The Barishal-based synthetic footwear exporter, growing in significance in export markets while eyeing a slice of the rapidly expanding local market, saw its share price appreciate 390% in a year, from 15 December, 2020 to 15 December, 2021.

This was even before considering the 5% stock and 10% cash dividend it announced for its shareholders.

The company announced slightly higher dividends and has been posting both higher sales and profits in recent quarters.

Hot on its heels was conglomerate Beximco Ltd, the stock of which was the second best performer in the DSE, registering a price appreciation of 373%.

Beximco Ltd has been reporting increasingly rising earnings since the first wave of the pandemic as almost all its business divisions -- textile, IT, healthcare, and especially its new line of personal protective equipment (PPE) -- showed high revenues, while repeatedly securing new work orders.

The company recently also received an eye-watering fund of Tk3,000 crore from the Sukuk market for its green projects in the solar power and textile sectors.

Prior to June last year, Beximco's stock was trading below Tk20, but it shot to over Tk150 in the next 18 months.

The third name on the list, however, came as a shock for many analysts, who had already internally debated whether even the top two merited their places based on sustainable improvement in the companies' fundamentals.

The shocking entrants

Share price of Emerald Oil Industries, a scam-hit rice bran oil producer sinking in bank liabilities amid no production, rose by 263% in the DSE over the past 52 weeks, as news broke of its acquisition by Bangladesh-origin Japanese investors.

The allure of the possibility of an injection of fresh funds in exchange for a controlling stake in the company and resumption of production with a view to exporting to the Japanese market drew plenty of investors who, speculating a possible turnaround, ditched already performing publicly-listed companies.

Another scam-hit company with its production units shut, CNA Textile, saw its share price soar by 200% on news of acquisition by the directors of two other listed textile firms.

Meanwhile, the share price of Rahima Food, which is yet to return to producing coconut oil, rose by 107% following its acquisition by a top conglomerate.

"Any price increase in the stock market should be substantiated by an earnings increase," said Chartered Financial Analyst Moniruzzaman, vice president of Bangladesh Merchant Bankers Association, also the managing director and chief executive officer of leading local merchant bank IDLC Investments Ltd.

The investment expert noted that leading companies in various sectors did not get the boost during the stunning rallies that doubled the Dhaka bourse's broad-based index DSEX in just 15 months.

"It was alarming that small-cap and the speculative stocks were the hot favourites among trend chasers and such stocks dominated the return tables," he said.

Even a cursory glance at this year's list of top 30 stocks with at least 100% gain would show that a large number of the companies lacked smooth operations and financial track records, while some were still out of production.

Alhaj Textiles, Beach Hatchery, Dacca Dyeing, Tallu Spinning, Safko Spinning, Padma Life Insurance, Aramit Cement and some others, which had operational difficulties or poor financial performance records made it to the list.

Professional investment manager, VIPB Asset Management CEO Shahidul Islam, CFA, said that he always looks at a company's dividend payout or the potential capability to pay high dividends in the future, and if none of these exist in a stock, then the price hike can be chalked down to pure speculation.

"Speculative frenzy of some investors, not [company] fundamentals, was the reason behind price appreciation of a number of sharply gaining stocks. Therefore, they appear to be overvalued," he told The Business Standard.

On the other hand, some blue chip companies have remained undervalued for a long time, said Shahidul, who is also an internationally-certified financial risk manager boasting a decade-long track record in the mutual fund industry of generating very high returns for his clients.

The growth stories

Despite the presence of some eye-brow raising companies in the list, a number of others warranted their place based on the growth of their sales and profits, said Mohammad Emran Hasan, chief executive officer (CEO) of Shanta Asset Management.

For example, spinning mills, except a few suffering from long standing internal problems, enjoyed a much higher price for their yarns this year which boosted their top line and profit margins.

Some recorded profits after a series of losses or subdued financial disclosures.

Companies in other sectors also reaped the benefit of higher prices for their products.

GPH Ispat, which is exporting billets to China from its new state-of-the-art steel mill, made the list on the strength of increased price of MS steel products.

Saif Powertec, the operator of Chattogram Port, also made the list by generating high revenue and profit this year.

Innovation-driven growth also led to the inclusion of a few companies.

The share price of Beacon Pharmaceuticals soared by 228% owing to its anticancer drug specialisation, which was later accompanied by growth in the sales of Covid-19 related drugs.

RD Food, a dairy company, owed its presence on the Top 30 due to the expansion of its product line and markets abroad.

Non-bank financial institution Bangladesh Finance Ltd signed a Memorandum of Understanding with a US investor for possible shareholding with the firm, participation in its board of directors, low cost foreign funding to the lender, being made a local working partner for planned infrastructural and in investments in other sector or financing which might reach as high as $2 billion.

This led to its share price rising by 142%.

Some companies like Sonali Paper and Anwar Galvanizing bagged good profits from their stock market investment during the bull-run this year.

Meanwhile, Genex Infosys Ltd, a leading business process outsourcing company in the IT sector, saw its share price appreciate by 195% in the period analysed.

Industry experts, however, sounded a note of caution about misinterpreted growth stories.

"Earning increases should be in a sustainable fashion. Otherwise, any stock market super performer may again nose-dive like we saw during the 2010 bubble and burst," said Chartered Financial Analyst Moniruzzaman.

None of the investment professionals, however, could provide any information regarding the secondary market winners such as Salvo Chemical, Kattali Textile, Newline Clothing Bangladesh National Insurance and GBB Power, among others.

There wasn't any visible earnings growth in a number of bourse victors, said CEO of Shanta Asset Management Emran Hasan.

But the common thing was "low market capitalisation", which often tends to abnormally fuel stock prices.

Those low market-cap stocks with high returns but no growth may simply be a supply-demand mismatch which needs to be addressed, he added.