Macro swings are a boon for E&Ps
With expected cumulative YoY earnings growth of 31% in FY19, the recent round of currency devaluation coupled with interest rate hike is set to amplify the revenue stream of Pakistan's E&P sector going forward. OGDC/PPL/POL are currently trading at FY19F P/E of 6.28/7.05/8.00x, as compared to the sector's (3-yr avg.) historical P/E of 9.32x. Index heavyweights (OGDC and PPL) now offer capital upsides of 45.7/32.9% at our FY19/20F intl. oil assumptions of US$70/65/bbl and long term forecast intact at US$55/bbl. Significant contribution to PPL's and OGDC's bottom-lines also emanate from exchange gains. Moreover, higher interest rate environment provides additional return on bank deposits and other investments as E&P companies have historically remained cash rich with financial assets representing 24.4/25.4% of the total asset base in FY17/9MFY18. Having said this, we continue to push for OGDC and PPL, and while POL is trading below its fair value, we believe Jhandial's declining production and probability of dry wells cast concerns over its outlook, hence should be gradually offloaded as it derives ~40% of its value through this well only. Our FY19 TPs for OGDC/PPL/POL are PkR217/276/693/sh, respectively.
Pakistan Petroleum Limited (PPL) is a supplier of natural gas. The Company is principally engaged in conducting exploration, prospecting, development and production of oil and natural gas resources. The Company operates nine producing fields, which include Sui, Kandhkot, Adhi, Mazarani, Chachar, Adam, Adam West, Shahdadpur and Shahdadpur West. It has working interests in approximately 20 partner-operated producing fields. Its partner-operated fields include Qadirpur Gas Field, Tal Block, Miano Gas Field and Sawan Gas Field. The Company, along with its subsidiaries, has a portfolio of approximately 40 exploration blocks, of which over 20 are operated by the Company, including Block-8 in Iraq, while approximately 20 blocks consisting of three offshore leases in Pakistan and two onshore concessions in Yemen are operated by joint venture partners. Its gas production from its operated and partner-operated fields is approximately one billion cubic feet of gas per day.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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