Intermarket Pulse: PSO: Valuations revised down amid reemerging cash-flow concerns
- We revise down our target price for PSO to PRs370/sh (down 4%), amid immediate cash-flow concerns. In contrast, we have revised up our EPS estimates by 3-12% for the next two years; but reduced our payout expectations to 40% (from 50% earlier), which is still subject to risks.
- In its 2QFY18 results, the company posted NPAT of PRs3.49bn (EPS: PRs10.71), down 31% YoY. Contrary to expectations, the company incurred inventory losses in a rising oil prices scenario (mostly on MS), along with stagnating FO sales and rising receivables. No dividend was announced.
- As the decline in FO sales looks inevitable, we believe cash-flow position should continue to improve post 2018 elections, where any liquidity injection and rise in cash sales would continue to be key upside triggers. The company trades at undemanding FY18/19F normalized P/E of 6.2x/5.7x. Buy!
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.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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