Despite sound financial results for the year ending June 2010, KSEs major driver, Oil and Gas Development Company, failed to prevent its shares from closing in the red zone.
The buzz on the street was that OGDC would post flat earnings growth over FY09 - something which was beaten by a good 7 percent, and yet could not excite investors.
This, for a stock for which punters are willing to bet on even an iota of positive element, is rather strange. But there was every reason for investors to not go over the moon with higher earnings, as it is skewed by the one-off event of Qadirpur gas wellhead price revision worth Rs8.68 billion recorded during 1HFY10.
Aside from that one-off event, the company failed to find firm grounds on the production front, as both oil and gas production volumes dipped by approximately 6 percent and 3 percent respectively. Thanks to the rupee which, though relatively stable, depreciated during the year, OGDC topline found a much-needed cushion for its topline.
The continuous expensing of various dry wells during the period led to a slight increase in the exploration cost. Worse! Industry sources believe that OGDC will expense out dry wells of one of its major fields in the upcoming quarter, which it has held back to portray a growing bottom line.
The announcement of Rs1.5/share as final dividend also highlights something that OGDC does not deem ideal. The company has shelved the payout ratio for the fourth consecutive quarter as the menace of circular debt continues to be the major cause of concern. What once used to be one of the highest high dividend yielding stocks now falls among the herd, which may be a dent to long term investors.
The ongoing flood may lead to some fine tuning of the companys projected earnings. How significant, if at all, will be the impact is yet to be seen as all wait for the word from the horses mouth once the company makes its full year presentation.
The firm still finds itself paying heavy lawyers fees as a number of cases are under litigation in the court. The circular debt devil stands firm with no signs of vanishing anytime soon, which is likely to keep the pressure on the firms payout.
In troublesome times, OGDC needs more efficient managers, but yesterdays newspaper read that a former petroleum secretary could be the new MD. Sigh. Perhaps, investors are right in disposing OGDCs stock if late, after all.
=====================================================
OGDC P&L
=====================================================
Rs mn FY10 FY09 % chg
=====================================================
Sales 142,572 130,830 9%
Operating expenses 23,728 22,674 5%
Gross profit 100,623 91,478 10%
Gross margins 71% 70% 1%
Other income 3,300 3,371 -2%
Exploration expenditure 7,902 7,460 6%
PAT 59,177 55,540 7%
EPS (Rs) 13.76 12.91 7%
=====================================================
Source: KSE notice