Pakistan Petroleum Ltd (PPL) is due to announce FY14E earnings on August 27, 2014, where we expect earnings to grow by 19% YoY to Rs25.41/share on the back of 28% YoY higher oil production.- In 4QFY14E, we project PPL’s earnings to grow by 43% YoY to Rs6.1/share owing to (1) 30% YoY higher oil production and (2) 25% YoY higher Other Income.
- On a sequential basis, 4QFY14E earnings are likely to edge up by 4% QoQ due to likely absence of exchange losses on foreign currency.
- Alongside result we expect PPL to announce a cash payout of Rs7/share (or Rs6/share and 10% bonus), taking cumulative cash dividend to Rs12/share in FY14E.
- We reiterate ‘Buy’ on PPL with a Target Price of Rs270. PPL trades at FY15F P/E of 7.0x vis-à-vis market’s FY15F P/E of 8.3x and JS E&P Universe FY15F P/E of 7.8x.
FY14E earnings to grow by 19% YoY to Rs25.41
Pakistan Petroleum Ltd. (PPL) is due to announce FY14E earnings on August 27, 2014, where we expect earnings to grow by 19% YoY to Rs25.41/share on the back of projected growth of 16% YoY in net revenues. Up-tick in sales is primarily owing to 28% YoY higher oil production (at 12.9kbpd) as oil production from Tal Block and Nashpa Block surged by 61% YoY and 23% YoY respectively. That said, gas production in FY14 is down 9% YoY (at 794mmcfd) on the back of 12% YoY and 29% YoY lower gas production from Sui and Sawan fields respectively. With an expected increase of 8% YoY in field expenditures, growth in operating profits is likely to clock in at 21% YoY.
4QFY14E earnings likely to witness sequential up-tick
In 4QFY14E, we project PPL’s earnings to grow by 43% YoY to Rs6.1/share owing to (1) 30% YoY higher oil production and (2) 25% YoY higher Other Income on the back of interest earned on PIBs (issued by the government to settle PPL’s receivables in June 2013). On a sequential basis, 4QFY14E earnings are expected to edge up by 4% QoQ due to likely absence of exchange losses on foreign currency. Note that in 3QFY14, PPL booked exchange losses of Rs508mn on foreign currency because of PKR depreciation vis-à-vis US$. Alongside result we expect PPL to announce a cash payout of Rs7/share (or Rs6/share and 10% bonus), taking cumulative cash dividend to Rs12/share in FY14.
Reiterate ‘Buy’ with a Target Price of Rs270
We reiterate ‘Buy’ on PPL with a Target Price of Rs270. PPL trades at FY15F P/E of 7.0x vis-à-vis market’s FY15F P/E of 8.3x and JS E&P Universe FY15F P/E of 7.8x. We expect PPL earnings to grow by 26% YoY on the back of rising hydrocarbon production as recent finds come online. Note that oil production is already up by ~12% YoY in FY15F vis-à-vis average oil production in FY14.
