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AKD Securities Limited Equity Research - Daily Report.

Karachi -- August 19, 2019 (PPI-OT)

Pakistan Oil and Gas: Oil price is melted icing on top of less cake

Jumpy oil prices and resulting volatility in E and P stocks have pressured performance recently, illustrating how external factors scar an otherwise cushioned investment case (dollar hedged profitability, counter-cyclical other income) or reveal deeper blemishes (delays in receivables clearance, improved gas system liquidity yet to filter through to payouts).

Amidst a weak operational outlook, we present sensitivities to Arab light price movements, where current price levels reveal attractive multiples, even in a 'lower for longer' oil price environment (US$40/bbl) while implied oil prices (back working from current stock prices) reveal OGDC/PPL trading at discounts of 51/64% vs. long term average of ~30%.

FY18 exploration activity presents a weak picture on multiple fronts, where we expect some strength to emerge from an improved security environment and stable drilling costs.

We have BUY calls on OGDC and PPL with June'20 TPs of PkR190/sh and PkR200/sh, implying upside of 77/85% from last close, while FY20 dividend yields of 11/8% with both players having significant operational idiosyncrasies rounding out investment cases hinging on value.

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Publication:PPI - Pakistan Press International
Date:Aug 19, 2019
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