Intermarket Securities Limited - Shell Pakistan Ltd. (SHEL) Intermarket Perspective - Shell Pakistan Ltd â€“ Initiation of Coverage

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Intermarket Securities Limited

Abdul Samad Khanani

Intermarket Perspective - Shell Pakistan Ltd â€“ Initiation of Coverage

We initiate coverage on Shell Pakistan (SHEL) – the second largest OMC in Pakistan by network size – with a Buy rating and Dec’18 TP of PRs461/sh. Our investment thesis is based on recovery in retail market share, leading presence in the lucrative lubricants market (c. 40% share) and inorganic growth from PAPCO pipeline network.
SHEL’s retail market share hit decade lows of 5.5/11.1% in Jul'17 (HSD/MS), post tragic Bahawalpur truck explosion amid ensuing supply-chain bottlenecks. However, recent volumes have depicted improvement; we eye continued recovery in the retail market backed by network expansion in CPEC-adjoining areas. Growing demand for lubricants from the consumer and industrial segments is also a plus.
Perhaps most importantly, positives are encapsulated by signs of renewed sponsor interest, after an extended period of dormancy. If focus remains, SHEL can perform at its true potential. We see a 5yr profit CAGR of 19% which stacks up well against CY18/19F P/E multiples of 9.2x/7.4x. A positive working capital cycle, EV/pump being even lower than PSO and high D/Y of c. 8.5% rounds up our investment case; Buy!

31/05/2018 17 EN

Underlying

Shell Pakistan Ltd.

Shell Pakistan is engaged in the formulation, blending, distribution, marketing, import, export, and sale of the following petroleum products: gasoline, kerosine, aviation fuel, diesel oil under the Shell Rimula brand name, and furnace oil. Co. also operates a network of service stations and convenience stores.

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PK0016701010 Pakistan Stock Exchange Pakistan

Provider

Intermarket Securities Limited

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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Analysts

Abdul Samad Khanani

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