Oil Marketing Companies in the limelight The OMC sector has garnered much investor attention of-late following i) impressive 1HFY14 results, ii) Capital Market transactions (Hascol) and iii) strengthening core operations on the back of robust volumetric sales growth and a stronger PkR. Consequently, the sector has appreciated by 20.6%CYTD, outperforming the broader market by ~17.0%. Going forward, while strong trend in MOGAS sales (expected to increase by 15%-16%YoY in FY14) and stable macros are likely to remain key value drivers for the sector, the next leg of rally is likely to be driven by news flow regarding any potential revision in product margins (MOGAS, HSD). In this regard, we foresee a 5% and 8% upward revision in earnings of APL and PSO, respectively for a 10% upward revision in HSD and MOGAS margins. PkR appreciation has been the vogue topic for the market of-late where PSO and SHEL stand to be the major beneficiaries of a stable PkR due to limiting of exchange losses. At current levels, while we have a ‘Hold’ on PSO with a TP of PkR439/sh, we point out that any upward revision in margins could lead to a significant revision in our target price. In this regard, every 5% change in HSD and MOGAS margins leads to a 4% change in our TP for PSO. BMA
Posted on: Tue, 25 Mar 2014 14:22:13 +0000
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