Ogdcl equity analysis

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Ogdcl equity analysis

  1. 1. OGDCL Equity ResearchSyed Sanakhawan Hussain
  2. 2. Investment Rationale Stock Summary` Key Investment Risks12M High/low 186/128 Commodity price riskTicker OGDCL Exchange rate riskNo. of shares (000) 4,300,928 Credit risk (circular debt)Market cap (000) 769,909 Exploration & Drilling risk12M Average daily volume 681,641 Security concerns 1M 3M 12MAbsolute% 4.6 19.0 43.0 A key plank of OGDC’s investment caseRelative index 0.7 5.1 5.7 is its three‐year volume CAGR of 13% making it one of the fastest growingAbs. (PKR) 8.1 29.3 55.0 mid‐cap Asian E&Ps OGDC’s investment in a PKR82bn energy bond via conversion of its overdue receivables not only offers earnings upside, but also raises possibility of higher cash payout in 2013
  3. 3. Investment Rationale Favorable Macroeconomics indicators Attractive Leadership in the Valuation E&P sector ImpressivePositive sector outlook BUY financial Performance
  4. 4. Sector Analysis • Sector revenue growth – 25% • Bottom line growth (PAT) – 40% • Growth drivers – Higher Oil prices – Exploration cost reduction – more successful drilling • Year end expectations bright – Excessive cash balances – Healthy dividends announcements • Major new discoveries • E&P sector outperformed the broader index by 9% during the year
  5. 5. Leadership In the E&P sector • Accounts for 52% of the total Pakistan’s recoverable oil reserves • Accounts for 37% of the total Pakistans recoverable Gas reserves • Accounts for 56% of the total Pakistan Oil production • Accounts for 22% of the total Pakistan Gas production • Accounts for 22% of the total Pakistan exploration acreage Market share60504030 Market share20100 Oil reserves Gas reserves Oil production Gas production Exploaration Acreage
  6. 6. Favorable Macroeconomic Indicators • Rising Oil Prices • Energy return on energy invested Exchange rate depreciation has had a major positive impact on OGDCL earnings, and further depreciation will further strengthen the company’s bottomline
  7. 7. Impressive Financial Performance • Sales Analysis Sales (billion – Sales grew at a CAGR of 11.9% 300 (2007-2012) and is expected to grow 250 at the current rate in the medium- 200 term 150 – Hike in Oil prices is the largest 100 Sales (billion contributor to OGDCL’s topline 50 – Successful exploration & growing 0 demand for energy are major drivers 2007 2008 2009 2010 2011 2012 2013 2014 2015 for future growth OGDCL sales to reach PKR 277.2 billion in FY15 growing at a CAGR of 11.9% Sales revenue figures PKR(bn) 2010 2011 2012 2013 2014 2015 OGDCL 142.57 155.63 197.84 221.38 247.72 277.20
  8. 8. Impressive Financial Performance • Profitability Analysis 80 75 70 FY11 FY12 FY13 FY14 6513.53% EPS CAGR 14.77 22.53 25.57 29.03 60 55FY07-FY14 50 45 4011.9% Revenue 155.63 197.84 221.38 247.72 35CAGR FY07-FY14 30 2007 2008 2009 2010 2011 2012 Net Income160 Net Profit Margin EBITDA Margin to sales140120100 80 The company is 100% equity 60 Net Income (billion) financed and its unleveraged 40 nature of funding makes it a solid 20 long-term investment 0 2007 2008 2009 2010 2011 2012 2013 2014 2015
  9. 9. Impressive Financial Performance Liquidity/Investment Analysis 12 • Unleveraged funding 10 8 6 4 2 0 2007 2008 2009 2010 2011 2012 Current ratio dividend yield ratio 2012A 2013E 2014F Confidence on Dividend growth:DPS PKR 7.5 12 15 •Conversion of overdue receivables with energy bondsD/Y % 4 7 8 •Energy bonds (6M kibor+1%) > Receivables (0%) •More cash on the balance sheet
  10. 10. Attractive Valuation Price Sensitivity Assumptions Price Sensitivity Risk Free rate 10.5% T 350 a 300 Risk premium 6% r g 250 Beta 1.28 e 200 t Cost of equity 18% 150 P r Weight of Equity 1 i 100 c 50 WACC 18% e 0 Dividend growth rate 11% WACC Current Price (9/10/2012) PKR176.5 Target Price 31st Dec 2012 PKR192 The target price as of 31st Dec gives an upside potential of 8.8%
  11. 11. The “RISK” factor Thank you!

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