POLs dividend delight

Pakistan Oilfields Limited (POL) finally announced its FY10 yearly financial results, but it did not come without a surprise, or two. Jittery investors took note of the below consensus earnings for POL as the firms share price dipped slightly on Friday at market close. The consensus amongst the analyst community was earnings of Rs34/share; the actual profits were 6 percent less.
The surprise was delivered by a higher-than-expected exploration cost, as it exceeded consensus estimates by a good 40 percent. In absolute terms though, the exploration costs remained on the lower side when compared to the year-ago period, depicting relatively lacklustre seismic and exploration activities carried by the firm throughout the year.
By the looks of it, the company might have been engaged in increased seismic activities as there was no expensing or declaration of dry wells during the period.
The commendable 27 percent growth in the top line is reflective of the much improved production on both the oil and gas fronts - as oil and gas production by the POL jacked up by 9 percent and 61 percent respectively. POLs achievement is tremendous considering the overall industrys production went down by1 percent during FY10.
It was the Manazlai field that acted as the saviour as oil and gas production from the field multiplied five times. It was the commissioning of Manzalai CPF in November which boosted the firms production. Moreover, the Pindori field also contributed significantly towards enhanced production and mitigated the production loss that arose from the Pariwali field.
The icing on the cake was the average net realized oil prices that increased by 3 percent as it jumped to $67 bpd, on the back of a surge in global oil prices. To top that off, the depreciating rupee was there as always to augment the topline, as 7 percent depreciation in rupee against the greenback swelled POLs revenue.
What the investors seem to have missed, however, is the surprising dividend announcement by the firm. The companys full year dividend reached Rs25.5/share, against all odds, as the expectation was around Rs17-18/share. Not many stocks in the market at present offer more divide yield than POL at 11 percent, which is a rarity for the company, as it was previously never considered a high dividend yielding stock.
The future looks secure for the firm with production levels on the rise and costs under control. Rupees likely depreciation in the year ahead will help mitigate any possible decline in the global oil prices. POL does not seem to be much affected by the circular debt either; all looks well for the firm in FY11.

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POL P&L

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Rs (mn)                FY09     FY10   % chg

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Sales                14,047   17,845     27%

Cost of sales         5,754    6,958     21%

Gross profit          8,292   10,886     31%

Gross margins           59%      61%      3%

Exploration cost      2,058    1,606    -22%

Other income          2,042    1,377    -33%

PAT                   5,618    7,437     32%

EPS (Rs)              23.75    31.44       -

DPS (Rs)              18.00    25.50       -

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Source: KSE notice

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