Volatile crude & domestic E&Ps
Oil prices have changed directions after a ~ 2.5 month of bull run when prices had shot up from USD 108/bbl at the start of Jan12 to reach their CY12TD high of USD 127/bbl in Mar12, an increase of 17%. However, the trend has since than reversed as renewed concerns over the Euro zone coupled with lackluster US job data dampened sentiment in the commodity. Resultantly, prices dropped sharply by 26% to touch a low of USD 94/bbl, levels last seen in Jan11. AGAL has averaged at USD 113/bbl during the ongoing quarter against USD 119/bbl in the preceding quarter, down by 5%.
We continue our preference for
POL (Dec12 TP PKR 230/share) and
PPL (Dec12 TP PKR 450/share) as they offer balance of dividend yield and potential capital gains.
We reiterate our BUY recommendation for
POL and PPL while maintaining our
HOLD recommendation on OGDC (Dec12 TP PKR 172/share).
1H FY13 – reference price up by 7% YoY
Recall that gas prices are fixed on 6mo averaged prices and benchmark crude for the reference period for 1H FY13 (Dec11-May12) averaged at USD 116/bbl, up by 7% over the last reference period. Resultantly, regardless of the direction of oil prices post May12, realized price of gas for 1H FY13 is expected to clock in higher by 9% as PKR depreciation will further lead to topline accretion. PPL is the key beneficiary as Sui & Kandkhot are free from caps in their policies.
OGDC – the least affected
Downside risk to OGDC's earnings is arrested because of caps placed in oil pricing policies – at USD 118/bbl, OGDC's realized price of oil was estimated at USD 93/bbl against PPL's and POL's USD 107/bbl and USD 105/bbl respectively. Moreover, realized price of gas for 2H FY12 has already been notified and with OGDC accruing 48% of its revenue from gas, downside risk from declining oil prices for 4Q FY12 is further mitigated. We lower our estimates for 4Q FY12 by 3.4% to PKR 5.97/share, bringing FY12E earnings to PKR 22.07/share, up by 49% YoY.
Gas buffers PPL
PPL generates more than 70% of its revenues through gas which is why the impact of lower than expected oil prices translates into a 3.4% downward revision in our estimate for 4Q FY12E to PKR 9.02/share. However, the impact on PPL is magnified if oil price continue at current levels as the well head prices will be revised downward for 2H FY13. Moreover, combined contribution of the Tal block and Nashpa to PPL's oil revenue is estimated to be around ~60% during FY13. Both these blocks do not incorporate caps in their pricing mechanism and as such a revision in oil prices magnifies risk (both upside and downside). With our revised estimates for 4Q FY12, PPL's FY12 expected earnings work out to PKR 33.57/share, up by 40% YoY.
POL – the most affected
Oil contributed ~50% to POL's topline but the company's low equity base and exposure to high yield oil fields (positive in an environment with upward trending oil prices but also amplifies downside risk) makes it the most vulnerable. We revise our 4Q FY12 estimates down by 6% to PKR 13.08/share which translates into FY12 EPS of PKR 52.53, up by 15% YoY.
(GLOBAL)
No comments:
Post a Comment