'Pakistan Oilfields may unfold good results'
Pakistan Times Business & Commerce Desk

KARACHI: The Pakistan Oilfields Limited (POL), an oil exploration and production company, is likely to unfold good results in the future, analysts said.

The extended exploration and production programmes are in the pipeline in various POL operated and non-operated blocks where the company is hopeful to draw good results in the future, an analyst of Capital One Research said.

The analyst said the scrip was undervalued. Furthermore, we even brought attention to the fact that during 2004 when the market initially reported an ever-high level of 5621, POL was trading at Rs223.15 per share.

However, when the 100-index was footing at 5676, POL was standing at Rs211.25 (as on December-8, 2004), which signified that still the scrip was far below from Rs223 reported as on April 19, 2004, providing an upside potential of Rs 12per share from its long term fair value.

The Price Movement

As of today when we see the price movement of the scrip since December 8, 2004, the POL has appreciated by almost Rs42 per share, where the index is standing at an ever-high level of 6353.27.

POL stock is currently trading at a prospective PER of Rs 11.5x (current price: Rs253 per share) quite above from its long-term fair value of Rs238 per share (FY05E EPS: Rs22.07 per share; Expected dividend per share Rs14 to 15 which translates into a cash yield of 5.5 to 6.0 per cent).

Although POL holds several positives mainly the planned exploration and development projects by the company in the forthcoming years, which are likely to lead to better earnings picture in FY05 onwards, we advise investors to remain cautious at this level as the stock is hovering in a ‘Sell’ zone.

Any fallout from this level can lead to losses in POL. At this point in time, ‘Sell on Strength’ strategy should be adopted. For those who are willing to go for fresh buying are suggested to let the scrip depreciate from its current level and then make an entry.

Net Income

The POL registered a net income figure of Rs660 million (EPS: Rs5.02) in 1Q-FY05 compared to Rs717 million (EPS: Rs5.45) during the same period last year, depicting a decline of 8 per cent quarter-on-quarter basis.

Although the sales revenue of the company perked up by 11 per cent due to increased international crude oil prices during the said period (Note: production levels for all the products of POL remained depressed), this decline was mainly on account of an upsurge in the exploration cost by 12 times where operating cost also increased by 16 per cent, as the company had incurred an addition of Rs67 million in its cost of LPG etc under the head of POLGAS.

Furthermore, decline in the other income head further squeezed the bottom line figure of POL. However, this does not mean that the company would not be performing well in future.●