PAKISTAN STATE OIL - PSO

MULAZIM ALI
Research Department, PAGE
Dec 31, 2007 - Jan 06, 2008

COMPANY PROFILE

PSO is a Public Limited company, with principal activity to procure, store and distribute petroleum and related products. It also blends and markets various kinds of lubricating oils. It has 3700 retail outlets across the country representing 80% participation in total industry network. During the year the Company widened its forecourt offerings by providing ATMs (in collaboration with the Saudi Pak Commercial Bank), self-service banking systems and business centers at its retail outlets network.

The company has been the winner of Karachi Stock Exchange Top Companies Award for 18 years, member of World Economic Forum, ranked amongst the top 1000 companies of Asia and one of the biggest contributors to national exchequer.

Sales Analysis

PSO is the oil market leader in Pakistan enjoying over 80% share of Black Oil market and around 60% share of White Oil market, and overall 73% market share in POL products sold in local market. In contrast to the declining trend of FY07, 1Q of FY08 witnessed a sharp rise in international oil prices. This led to a positive impact on the company's earnings through improved turnover and inventory gains.

PSO has achieved a 5-year Sales CAGR of about 13% while its volumetric CAGR is 1.76%, which is mainly due to global and domestic oil price hikes. PSO's sales reached Rs.350 billion during FY07 showing a growth of 17.25% to the last year figure of Rs.298 billion. The quarterly results showed even greater hike of 21.29% having the sales figure Rs.122 billions for 1Q08, to Rs.101 billions for 1Q07.

Profitability Analysis

Company's profitability declined during FY07 by 37.67% as the local oil prices remained stagnant as compared to global oil prices which were shooting up continuously. But the last quarter hike in local prices have opened new windows of profitability for PSO and the company has started enjoying the fruits with a phenomenal increase of 270% in Profit after tax for the 1Q08 compared 1Q07. During the year the company registered Rs.2.1bn profits after tax while last years figures were Rs0.57bn.

FINANCIAL ANALYSIS

30-JUN-07

30-JUN-06

Total Assets

74,737.30

70,168.50

Total Equity

20,939.20

20,813.10

Turnovers

349,706.30

298,250.0

Profit after Tax

4,689.80

7,524.70

ROE (%)

22.40

36.15

EBITDA / Net Interest (x)

8.13

15.14

Total Debt/ Equity (%)

43.29

36.75

Equity/ Total Assets (%)

28.02

29.66

DIVIDEND ANALYSIS

PSO has been a leading dividend paying company with 60% on average payout ratio. The company has been paying decent amount of dividends for the last five years and more. Actually the payout depended more on the income earned. As the last year profits after tax declined by 37% the dividend paid also declined from Rs.34 per share to Rs.21 per share by 38.2%. Even the declining profits could not resist the company from paying 58.3% of its earnings amounting to Rs.4.8bn. PSO announced interim dividend of Rs.5/share for the 1Q-FY08.

YEARS

EARNINGS

DIVIDENDS

1998

9.12

5.56

1999

18.68

7.5

2000

15.61

10

2001

15.75

10

2002

22.31

10

2003

23.5

16

2004

24.56

17.5

2005

33.17

26

2006

43.87

34

2007

27.34

21

2008

n/a

n/a

INTERNATIONAL OIL PRICES

The international oil market continues to change its shape and structure with rising complexities and ever-present political risks in supplier countries. The price of standard crude oil in international market was under $25/barrel in September 2003, but by August 11, 2005, it had risen to over $60/barrel, and traded at over $100 in November 2007.

There are many reasons for the shortage in oil supply, leading to increased prices:

Growing turbulence in the Middle East, the world's largest oil-producing region, has led to decreased exports, instability in Saudi Arabia, North Korea's missile launches, the Crisis between Israel and Lebanon, Iranian nuclear brinkmanship, terrorist attacks on oil and gas installations this factor adds an additional premium -including insurance costs- to the price of oil, reports from the U.S. Department of Energy showing a decline in petroleum reserves.

Outside the Middle East, other oil producing nations have experienced similar problems, such as the strikes and political problems in Venezuela and potential instability in West Africa.

COMPANY OUTLOOK

The global price changes will have significant impact on company's financial performance but the more inventory gains are unlikely. Moreover, the government has changed the margin calculation formula, which has negatively impacted the company's profitability, though currently the impact is marked down by higher prices. However, the impact would be more pronounced in case of any substantial decline in oil prices. At the same time, the company's largest storage capacity, which generates inventory gains in the period of rising prices, could also result in losses during the falling trend.

The company's competitiveness is still in tact thus nothing can harm its financial performance but Global oil prices and any extraordinary circumstances like policy change etc.