6
Event
- We preview OGDC's 2QFY12 results and expect the company to report net profit of PKR19,885mn (EPS PKR 4.62, up 33.6% YoY), operating profit of PKR30,113mn (up 5.7%) and top line of PKR44,786mn (up 7.6%). We also expect the company to announce interim cash dividend of PKR1.75- 2.00/share. Considering the recent outperformance of the stock, we downgrade OGDC to ‘Neutral’.
- Revenues to grow on the back of high oil prices: Even though OGDC’s oil production is estimated to decline by 5.3% to 35,745bpd, its oil revenues are projected to post double digit growth of 15.1% to PKR23,075mn, owing to 18.2% jump in realized crude prices to $79.9/bbl, and 2.3% depreciation in Pak Rupee vs US Dollar. Gas revenues are projected to post nominal growth of 3.1% to PKR20,410mn driven by higher production of 1,045mmcfd. OGDC’s operating and financial performance for the remaining quarters is slated to register marked improvement, as increased oil and gas output owing to start of production from Nashpa-02 and KPD-1 will boost company’s revenues and earnings.
- Rising field expenditures to curb operating profitability, other income to buttress bottom line : We estimate OGDC’s field expenditures to increase by 10.0% to PKR8,825mn, primarily due to higher lifting costs from JV fields and increase in amortization charges due to downgrade in reserves of several fields post TRACS International’s reserve assessment for OGDC’s fields, especially Uch. Exploration expenditures will grow marginally YoY, as absence of dry wells will limit the exploration costs to only geological and geophysical expenses. Other income is expected to register massive growth of 604.9%, as significant improvement in cash balances will boost company’s interest income, and depreciation in Pak Rupee will result in higher exchange gains on company’s FX deposits.
Earnings Revision
- No change
- Jun-12 price target: PKR160.1/share.
- Catalyst: Increase in Qadirpur pricing in dollar terms, resolution of circular debt and materialization of key development projects.
- Downgrade to ‘Neutral’, oil prices a key upside risk: OGDC’s stock price has appreciated by 22.3% in less than two months post our upgrade to ‘Outperform’. However, we do not see OGDC’s results to contain any excitement for the market and consider it relatively expensive to its peers who are trading at discounted valuations. Though we maintain our earnings estimate for OGDC, we highlight that persistently higher oil prices poseupside risk to our forecast.
- OGDC currently trades at FY12 PE, PB, and EV/EBITDA multiples of 8.4x, 2.8x, and 4.4x, respectively. We downgrade OGDC to ‘Neutral’.
About The Company
Oil and Gas Development Company (OGDCL), the largest Exploration and Production Company of Pakistan, was established in 1961 to prospect, refine and sell oil and gas in Pakistan. The company is listed on all three stock exchanges of Pakistan, as well as on London Stock Exchange.
Government of Pakistan (GoP) divested 4.98% of its shareholding in the company in October 2003 through an Initial Public Offering. GoP further divested 9.5% of its shareholding through Secondary Offering in the form of Global Depository Shares to international and local institutional investors in December 2006 and 0.5% to general public in February 2007. GoP now own 85.02% of shares of the company. OGDCL’s share in country’s total oil and gas production stands at 59% and 23% respectively.
(FS)
