Since the announcement of its 9MFY12 result, the stock of Attock Petroleum Limited (APL) has remained dull, underperforming the benchmark index by 0.2%. This is mainly on account of below expectation profitability in 3QFY12 as lower exports, not only curbed revenue but resulted in 4.3 percentage points higher effective tax rate during the quarter. In addition to this, falling crude oil prices (down by 16.3% since April 2012) have also played down on the oil stocks. We are of the view that the market has over played these developments as strong fundamentals like aggressive volumetric growth, integration with group refineries and healthy payouts are still intact. In the short term however, removal of ban on exports to NATO and a strong final dividend can be the price triggers. Our DCF based December 2012 target price for the scrip works out to PKR 496/share, offering an upside of 11.5%, thus we recommend Buy.
Strong final dividend can trigger the stock price
We have witnessed above expectation interim dividend payout not only for APL but all the Attock Group Companies, excluding National Refinery Limited (NRL), which seldom pays interim dividend. This is hinting towards the possibility Group’s philosophy of gearing up its payouts going forward. We have a final dividend expectation of PKR 32.5/share, taking full year’s payout to PKR 50/share, translating into dividend yield 11.2%, highest among the OMCs. This strong dividend paying ability of APL makes it our top pick among the listed OMCs, a sector categorized by the cash constraints due to the uncertainty of circular debt shrouding the whole energy chain.
Profitability improves by 14% YoY in 9MFY12
Despite suffering a 17% QoQ earnings contraction, APL managed to improve its profitability by 14% YoY in 9MFY12. This was mainly on account of strong growth in retail fuel segment where HSD and MS witnessed a YoY rise of 71.7% and 48.7%, respectively. This resulted gross profit to post a YoY growth of 37% in the period under review. Income on bank deposits suffered a YoY drop of 12% due to lower cash balances as the company had to invest in increasing working capital requirement due to rising inventory levels. QoQ comparison however reflects a complete opposite picture, where a 14% volumes drop in HSD and lower realized margins led to fall gross profit by 10%. Falling cash balances along with decline in interest rates also dented income on deposits by 20% QoQ.
(AH)
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