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Tax modifications on the horizon that would stimulate activity in the stock market

2014-03-06

Sahem Weekly Trading Report [[02-06/03/2014

Developments sequenced in the Palestinian economic environment in general and Palestine Stock Exchange PEX in particular for several months, where each time establishes a new base to support a solid launch in the national economy elements.  Regarding the PEX, the substantial events rolled out to strengthen the current investment opportunities and their returns in the coming years. These developments started by a change in the shareholders’ structure of leading companies, then achieving legislative progress, and succeeding to join the top- ranked worldwide institutions in the surveillance field that will enable other international achievements to take place. Moreover, the growing data of the listed companies’ financial results also supported these endless developments.  The investment encouragement factors in the PEX are inexhaustible, whereby; the lately financial and economic related approved decisions come as leverage for the investment decision. Where, the prime minister signed on a draft resolution to modify the investment promotion law, in which in turn will stimulate in growing the economy, reducing unemployment, poverty and revitalizing the productive sectors.

From the draft resolutions that are raised for approval, an adjusted draft resolution for the income tax law that will be modified over the course of 3 years in order to improve the treasury revenues, reduce tax evasion and expand the tax base horizontally. One of the modifications is to restructure the tax rates and brackets gradually, in which will positively affect the profits of the public listed shareholding companies and will be reflected with large numbers on the highly operated companies leading for higher earnings per share EPS, dividends per share DPS and retained earnings that are essential for financing their assets, operations and future investment plans. Among the adjustments that will stimulate liquidity and activity in the PEX, the cancellation of tax on capital gains derived from the purchase and sale of securities that previously was an obstacle for the financial institutions, banks and investment companies to achieve rapid or medium-ranged investment positions. Undoubtedly, this adjustment will positively reflect the financial results of the companies when they diversify their revenues sources through the stock market without high cost.  Moreover, all capital market elements expect positive marketing effects from this adjustment on foreign investors and investment funds with clearing the vision on these investment costs, which will be adding an important factor to attract foreign investments especially with the latest developments.

On the other hand and within the essential developments within the companies, the PEX witnessed successive announcements regarding the dividends distributions for the year 2013. Within this context, the BOD of Palestine Development and Investment Company PADICO- the largest investment company in terms of marketing capitalization in the PEX- proposed distributing 6% cash dividends for the company’s shareholders as for the GA meeting date that will take place in the second half of May 2014, record payout ratio of 57% from the EPS attributable to the shareholders of the parent company and 3.3% dividends yield according to the current market price. Moreover, the BOD of The National Aluminum & Profile Company NAPCO recommended distributing 5% cash dividends for the year 2013, to record payout ratio of 46% and dividends yield of 6.4% according to the current market price. On the other hand, the BOD of Palestine Islamic Bank ISBK also recommended distributing 5.8% cash dividends for the year 2013, to record 54.7% payout ratio and 4% dividends yield according to the current market price.