IGI Securities Limited – Day Break (20-01-2020)

Karachi, January 20, 2020 (PPI-OT): Oil and Gas Exploration Companies – POL: Despite lower oil prices, weaker PKR to lift 2QFY20 EPS to 14.88 up by +5%YoY: DPS PKR 21

Pakistan Oilfields Limited’s (POL) board meeting is scheduled on 21st Jan-20 to announce financial result for 2QFY20, where we expect the company to post earnings of PKR 4.23bn (EPS PKR 14.88), up by +5%YoY,

We estimate incline in earnings on the back a) 16%YoY PKR depreciation despite 5%YoY drop in oil prices and lower oil/gas/LPG production and, b) lower effective tax rate. Exploration cost is estimated to remain on higher side owing to higher seismic data acquisition,

On quarterly basis, earnings are expected to increase by +5%QoQ on the back of +2%/+2%/+6%QoQ rise in oil/gas/LPG production, higher other income in the absence of exchange losses (nearly PKR 200mn in 1QFY20 on net basis) and 2%QoQ rise in oil prices,

We recommend a ‘BUY’ stance on POL with our Dec-20 target price of PKR 518.64/share offering 13% upside from last close. The company is currently trading at FY20 P/E of 7.1x and offers a dividend of 11.5%.

Earnings to clock in at PKR 14.88/share for 2QFY20, up by +5%YoY

Pakistan Oilfields Limited’s (POL) board meeting is scheduled on 21st Jan-20 to announce financial result for 2QFY20, where we expect the company to post earnings of PKR 4.23bn (EPS PKR 14.88), up by +5%YoY, compared to PKR 4.02bn (EPS PKR 14.17) in the same period last year. We estimate incline in earnings on the back a) 16%YoY PKR depreciation despite 5%YoY drop in oil prices and lower oil/gas/LPG production and, b) lower effective tax rate. To note, POL did not incur any dry well cost during the quarter, however, exploration cost is estimated to remain on higher side owing to higher seismic data acquisition (Ikhlas-POL operated and Tal-operated by MOL). This brings total profitability for 1HFY20E to PKR 8.23bn (EPS PKR 29.0) compared to PKR 7.90 (EPS PKR 27.79) in the same period last year. POL is foreseen to announce cash dividend of PKR 21/share along with the result.

On quarterly basis, earnings are expected to increase by +5%QoQ on the back of +2%/+2%/+6%QoQ rise in oil/gas/LPG production, higher other income in the absence of exchange losses (nearly PKR 200mn in 1QFY20 on net basis) and 2%QoQ rise in oil prices. Exploration cost are expected to rise by +16%QoQ amid higher data acquisition.

Recommendation

We recommend a ‘BUY’ stance on POL with our Dec-20 target price of PKR 518.64/share offering 13% upside from last close. The company is currently trading at FY20 P/E of 7.1x and offers a dividend of 11.5%.

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