IN FOCUS Oil and Gas - E&P: 1QFY15 Oil Prices: Weak on Ample Supplies + Weak Demand Despite posting a strong growth in earnings during FY14 (up 31%YoY) driven by robust oil production, the E&P sector remained under pressure as it underperformed KSE100 by 2.5pps in 1QFY15. The lackluster price performance can be attributed to i) declining oil prices (down 6%QoQ on average) and ii) concerns on OGDC’s GDR pricing. The bearish trend in oil prices was marked by ample supplies which we believe will soon normalize owing to i) production cuts by OPEC, ii) demand recovery in winter season and iii) resumption of refinery operations (end of maintenance). We believe the negatives have been overpriced as the sector currently trades at an undemanding FY15F P/E of 7.5x. Our bullish stance on sector is based on i) mounting oil and gas production, ii) PKR depreciation, iii) accelerated exploration drilling and iv) decent earnings growth (FY14A-FY16F earnings CAGR of 11%-13%). OGDC and POL remain our top pick in the E&P space with a TP of PKR322/sh and PKR630/sh, offering a total return of 36% and 31%, respectively. PPL follows with a TP of PKR270/sh, representing total return of 26%. Report by: Muhammad Affan Ismail, CFA BMA Capital Management Ltd. (9221) 111 262 111 This report produced by BMA Capital Management Ltd. contains information from sources believed reliable; we do not guarantee that the matter is accurate or complete. Our Research Analysts compile this memorandum based on opinions and judgments, which may vary and be revised at any time without notice. This report is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned. It is published for the use of our clients may not be reproduced, distributed or published by any person for any purpose whatsoever. Action will be taken for unauthorized reproduction, distribution or publication. The views expressed in this document are those of the BMA Research Department and do not necessarily reflect those of BMA or its directors.
Posted on: Tue, 30 Sep 2014 07:15:39 +0000
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