PSO_Holding back the tide of competition, (AKD Daily, Mar 03, 2020)
AKD Daily
PSO: Holding back the tide of competition
- Following 1HFY20 results, posting of detailed accounts and analyst briefing held by management, we amend our forecasts for the state OMC on the back of: i) inventory losses of PkR2.6bn for 2QFY20, and ii) higher finance cost as company continues to retire foreign loans (having lower markup) in favor of more expensive short term borrowing. Based on these dampeners on the horizon, we revise FY20F EPS to PkR25.3/sh against PkR28.3/sh previously.
- PSO's market share in retail fuels has increased to 42% in 7MFY20 against 37% in 7MFY19, aided by HASCOL vacating the space while company also provided discounts which, according to our calculations, stand at 6.1/11.0% for MS/HSD for 1HFY20.
- According to news reports, issue of Sukuk-II is expected to partially settle the circular debt woes related to power sector, however increasing receivables from LNG sector are developing into a major concern particularly if government continues to delay the revision in gas prices.
- With a Buy stance on the stock (TP of PkR243.3/sh, implying an upside of 41.2%), we believe the Sukuk issue is going to provide support in the near term while margin revision towards end of FY20 can prove to be an additional trigger. However, a possible delay in revision, as government looks to control inflation, poses a downside risk to our estimates.
AKD Research
Pakistan State Oil is a petroleum group based in Pakistan. Co.'s principal activities are the procurement, storage and marketing of petroleum and related products. Co. also blends and markets various kinds of lubricating oils.
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.
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