Karachi: AKD Securities raises estimates and target price for OGDC where development catalysts merit a Buy stance.
According to AKD Securities, high stock of FII ownership, low payout and development backlog have recently decoupled the local market from high impact asset monetization. However, upcoming sequential IQFYI2 earnings of PKR4.8Glshare, up 25%VoY should restore market confidence on deliverability, in AKD’s view. Revised production profile estimates and long term oil price outlook at US$95/bbl raise earnings forecast by 26%-25% for FYI2F-FY13F. Revised earnings outlook, TP rollover and risk free rate cut lead a target price revision of 15% to PKRI77/share. OGDC has completed phase – I of KPD-TAY development with l00mmcfd (l000bpd of condensate) to be supplied to SSGC’s network by December 2011. However phase -I of KPD-TAV and Sinjhoro development have been back tracked to Dec 2013 and June 2012 respectively (phase II of Sinjhoro is scheduled for completion in Dec 2012). Guidance outlook on project development should support a 4 year volume CAGR of 9% underpinning AKD’s earnings CAGR of 19% over the review period. Stock price has declined by 14% over the past 3 months, underperforming the broader market by 6.2%. AKD Securities believes development catalysts should provide support to market price performance where upcoming results should vindicate a solid earnings growth outlook. While payouts are likely to improve through the year on stronger cash flow realization, AKD Securities expects a DPS of PKR1.5 with the 1QFY12 result – Buy!
|Vol Growth% (mmboe)||8%||9%|
|Source: AKD Research|
1QFY12 Result Preview: AKD Securities expects OGDC to post earnings of PKR4.86/share in 1QFY12, up 25%YoY. Top line growth of 21%YoY should lead earnings growth underpinned by 12%YoY and 4%YoY increase in gas and oil production, respectively. High realized oil prices should prop up oil revenues by 33%YoY. Controlled exploration expenditures should further support bottom-line growth in AKD’s view. That said while drilling schedule is likely to be impacted with last year’s backlog and flood impact, AKD Securities believes the market will likely shift focus to high impact exploration on Zin and monetization of TAL block assets. Targeted earnings growth of 29%YoY for FY12F is the highest within AKD’s E&P coverage duster where development plans for Mela and Nashpa could pose upside risk to earnings estimates through AKD’s forecast range. OGDC trades at a forward PER of 7.2x with current market price offering an upside of 33% to AKD’s revised target price of PKR1 77/share – Buy!