PAKISTAN STATE OIL COMPANY LIMITED
MULAZIM ALI KHOKHAR (Research Analyst)
Sep 8 - 14, 2008
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. Earlier the Company widened its 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, and is a member of World Economic Forum, is ranked amongst the top 1000 companies of Asia and is one of the biggest contributors to national exchequer.
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, 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 24.48% while it's volumetric CAGR is 8.61% which is mainly due to global and domestic oil price hikes. PSO's sales reached Rs.583 billion during FY08 showing a growth of 42% to the last year figure of Rs.411 billion.
During FY08 due to hike in local prices and subsequent inventory gains have opened new windows of profitability for PSO and the company has started enjoying the fruits with a phenomenal increase of 200% in Profit after tax for the FY08 compared with FY07. During the year the company registered Rs. 14.05 bn profits after tax while last years figures were Rs.4.69 bn. PSO's EBITDA margins increased to 4.1% from 2.29% of sales, and the profit after tax margins have hiked to 2.4% from 1.14% of sales.
Returns on Equity have hall-marked at 45.4% and the returns on capital employed at 68.1%. EPS has reached to Rs. 81.94/share compared to last year EPS of Rs.27.3/share registering a hike of 200% approximately.
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 is depended more on the income earned. As the last year profits after tax increased by 200% the dividend paid also increased from Rs.21 per share to Rs.23.5 per share.
The industry works on the convention of "higher the sales, greater the margins." Since the oil and gas prices are regulated, their inherent profit margins are lower. Thus the industry naturally gives rise to intense competition to capture more customers providing efficient fueling facilities.
PSO being the leader of the industry enjoys the major chunk of the existing sales in Pakistan and thus earns more than its competitors.
Prices or Technical Analysis (Bullish if market stabilizes)
Currently the MACD is bullish since it is trading above its signal line. The MACD crossed above its signal line 7 period(s) ago. Since the MACD crossed its moving average, Pakistan State Oil's price has decreased 3.03%, and has ranged from a high of 439.990 to a low of 366.000.
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 US $25/barrel in September 2003, but by August 11, 2005, it had risen to over US$ 60/barrel, and traded at over US $145 very recently during 2008. Now the prices are expected to settle at around US $ 110/barrel.
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 of crude oil. Other factors adding fuel to the fire are: instability in Saudi Arabia, North Korea's missile launches, the rift between Israel and Lebanon, Iranian nuclear brinkmanship, terrorist attacks on oil and gas installations and many more including speculative trading. These were included in reports from the U.S. Department of Energy showing a decline in petroleum reserves.
Outside the Middle East, other oil producing nations have also experienced similar problems, such as the strikes and political problems in Venezuela and potential instability in West Africa.
The total petroleum oil consumption has gone up by 15.18% from 14.65 million metric tons to 16.85 million metric tons. The major petroleum consumer sectors are Transport and Power with average consumption share of 48% and 40% respectively. The transport sector's petroleum consumption declined from 8.15 million metric tons to 7.98 million metric tons. While Power sector's oil consumption increased from 4.2million metric tons to 6.74 million metric tons. The share of both the sectors' consumption to total consumption is about 85% on average. Since both Transport and Power sectors are the back bone of our developing economy we see increasing average growth of the petroleum consumption in Pakistan with about 5% CAGR.
Since global oil prices are not expected to surge significantly from prevailing levels, any further inventory gains are unlikely in the near future. Moreover, recently 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.