PPL earnings boosted by wellhead gas prices

Pakistan Petroleum Limited (PPL) announced its full year 2009 results on Monday posting 41 percent jump in earnings - yet again asserting the view that commodity sector is a safe haven for investors in Pakistan. Higher wellhead gas prices on its un-capped fields, massive rupee devaluation and sizeable income on deposits despite lower production were key contributors to bottom line growth.
PPL reported earnings of Rs 33.38/share - largely in line with market expectations. Circular debt which has been on a rampage hampered the firms dividend payout ratio which has historically hovered around 50 percent. PPL announced dividend of Rs 3/share taking full year dividend to Rs 13/share with a payout ratio of 39 percent. The announcement of 20 percent bonus shares, however, sent across fresh waves of pleasant air among the shareholders.
The firms revenues jumped 35 percent despite lower gas production, which comprises roughly around 97 percent of the firms revenues. This is attributable to 48 percent increase in applicable crude oil price coupled with 23 percent depreciation that pushed wellhead gas prices 52 percent higher during the period. Half-yearly wellhead price adjustment, on average oil price of the preceding six months benefited PPL the most, as gas revenues corresponded to $99/ barrel for FY09, despite lower oil prices in 2HFY09.
The companys gas production continues to be on a decline - down 4 percent to 965 mmfcd from 1004 mmfcd in FY08 - owing to continuous decrease in output from heavyweight gas field of Sui which fell 6 percent. Contribution from other important fields, Sawan and Miano, also declined by 10 and 18 percent respectively. However, production from Mela and Kandhkot fields saved the firm, with an increase of 35 percent.
PPLs other income contribution was healthy, despite that circular debt kept a check on its cash balances, as its high exposure in foreign exchange assets helped take advantage of rupee devaluation. These were mainly booked in 9MFY09 when trade debts rose to a massive Rs 17 billion.
PPL very much like its peers is facing the circular debt music where gas distribution companies owe at least Rs 21 billion to the firm. That said, PPL still seems to be in healthier liquidity position than any of its peers and the resolution of circular debt this month (as promised) should boost its cash position going forward. However, 1HFY10 will likely remain under pressure owing to a reduction in wellhead gas prices for the period.
PPL has heavily outperformed the benchmark index at KSE from January to date. PPL needs to pick up the pace of exploration as constantly declining gas production from major fields will impede its performance in absence of better wellhead prices that came to its rescue in FY09.

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PPL P&L

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Rs mn                 FY09       FY08      % chg

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Sales                 61,580     45,717      35%

Royalty                7,463      5,516      36%

Field expenditure     13,161     10,694      23%

Gross profits         40,956     29,506      39%

Gross margins             67%        65%      3%

Other income           4,081      3,036      34%

Finance cost              94         67      41%

PAT                   27,703     19,707      41%

EPS (Rs)               33.38     23 76       41%

DPS (Rs)               13.00     14.00       -7%

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Source: Company results

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PSMC

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Rs(mn)            FY09       FY08    % chg

Sales            9,748     25,288      61%

Cost of sales    9,409     24,276     -61%

Gross profits      338        990     -66%

Gross margins       3%         4%

Other income       281       495      -43%

Finance cost         5        57      -92%

PAT                161       599      -73%

EPS(Rs)           1.96      7.28      -73%

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Source: company results

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RAMADAN FLOUR PACKAGE FOR SINDH

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Total population of the province                50 million

Targeted population                             35 million

Current open market flour rate (Ps/kg)                  30

Subsidized rate (Ps/kg)                                 10

Total subsidy outlay Rs (bn)                             2

Subsidized flour (kgs)                         100 million

Per capita monthly wheat consumption in Sindh       9.1 kg

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OPTION 1

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Provide 3-kg of subsidized flour to all of the target

population (35 mn)

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OPTION 2

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Provide adequate subsidy (9.1 kg/person) to less than

1/4th of the target population (11 million)

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* assumption after subtracting higher income population

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