Pakistan Petroleum Limited

The investors at the KSE were not much flattered by the superior half yearly performance that the Pakistan Petroleum Limited (PPL) announced on Monday. That is because the research houses deem the stock to be trading on a premium, which is why even an in-line with consensus earnings and a healthy dividend could not stop the slide in PPLs price.
Barring the share price, the company seems to be in good shape as both the controllable and the uncontrollable variables are currently in favour of the company.
The significant improvement in the topline owes a lot to increased production on both oil and gas fronts. According to reports, the overall increase in volumetric sales was nearly 8 percent with oil production rising by a mammoth 83 percent, while that of gas swelled by 5 percent.
Given the lions share of gas revenues in the mix, the 5 percent rise in gas production meant more than the increase in oil flows for PPL. Although, the contribution of oil revenues has slowly started getting higher in the last few quarters and PPL would not mind that one bit, given the oil price movements in recent times.
The enhanced production is primarily a result of commencement of operations at the Manzalai CPF field post November, which triggered massive improvements in production volumes form the Tal Block. Furthermore, the start-up of Nashpa and Adam exploratory wells supplemented the production growth during the period.
The field expenditures, however, remained on the higher side, surpassing the consensus estimates by Rs1 billion. The higher production obviously had its say in swelling the field expenditures, but it seems that the increased focus on seismic activities had its impact too. PPL reportedly engaged in 2D seismic shots of nearly 1,200 km and seems to have faced a massive cost overrun in an effort to arrest the falling yields.
While the firm seems to be in a healthy cash position as the circular debt issue does not seem to hamper the firms liquidity a great deal.
The government should feel lucky to have received a dividend from one of its enterprises, in such times when every other company in the energy chain is facing severe liquidity issues. But, it has more to do with a relatively healthy operating cash flow at the moment as the oil prices are on the higher die - should they slide considerably, the receivables will have a telling impact on the payout. Perhaps, this is why, the investors are not overly optimistic on PPL right now.

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PPL P&L

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Rs (mn)                    1HFY11   1HFY10   % chg   2QFY11   2QFY10   % chg

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Sales                     37,416   25,287      48%  19,197   13,099      47%

Field expenditures         9,979    7,716      29%   5,574    4,417      26%

Gross profit              23,003   14,612      57%  11,353    7,180      58%

Gross margin                  61%      58%      6%      59%      55%      8%

Other income               1,910    1,239      54%     959      670      43%

Other operating expenses   1,715    1,092      57%     842      542      55%

PAT                       16,618    9,754      70%   8,829    4,779      85%

EPS (Rs)                   13.91     8.16             7.39     4.00

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Source: KSE notice

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