PPL: Sui’s D&P lease delayed but growth prospects intact; Buy
- We reiterate our Buy rating on PPL with a revised TP of PkR201/sh (up 6%, rolled over to Jun’18). Our liking for the stock is underpinned on: (i) stellar earnings growth in FY18F, (ii) forecasted gas production reducing dependence on oil prices; and (iii) substantial aggression on the exploration front.
- It seems likely that finalization of Sui’s D&P lease will be dragged into FY18, as the govt extended its mining lease for another six months. Thus, we reduce our estimate for FY17 by 21% to PkR13.60/sh, but concurrently raise FY18F EPS by 10% to PkR27.01 since the retrospective impact of the lease will likely appear in FY18.
- The stock is offering a potential upside of 17% to our target price and is trading at an undemanding valuations with FY18F EV/EBITDA of 3.5x. With more potential triggers for FY18 than OGDC and moderate sensitivity to oil prices, PPL’s stock price may outperform peers as a result.
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.
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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