Company Information: General information on the company, its activities and position in the market

Price performance: Movement of the stock price compared to the market index.

52 week high - Highest price over the previous 12 months

Equity Profile

Pakistan State Oil

KATS Symbol: PSOCL
Kats Code: JB007
KSE Sector: Fuel and Energy

Current Price* Rs158.30
12 month Target Price Rs194
Short Term NEUTRAL / Long Term ACCUMULATE

Company Information

Formation

1976

Location

Country-wide

Primary activity

Storage, distribution and marketing of POL products and petrochemicals.

Products

Gasoline,Diesel,
Furnace Oil,
Jet Fuel, Kerosene, Lubricants, Industrial Chemicals, LPG and CNG.

Ownership		Mkt share Capacity	70%
Federal Government	25.51%	Storage	773381MT
Financial Institutions	32.65%	Installations	9
Foeign Investors	18.60%	Depots	29
Individual Investors	16.17%	Retail Outlets	3610
Listing on KSE	1977

Industry Highlights

Industry Highlights: Current developments in the industry and medium term outlook

At present, there are three key players in the oil marketing sector viz. Pakistan State Oil, Shell and Caltex, with PSO being the largest of the three. Oil marketing companies operate on fixed margins for most products (exception being furnace oil and lubricants), in that, their gross profitability is directly linked to the sales price of these products. Quarterly reviews of POL product prices ensures that these follow international trends.
Increased government focus on foreign investment in the oil and gas sector signals a more competitive environment in the near term. Heavy regulation thus far has been the primary disincentive for new investment in the industry. Of late, however, there has been encouraging activity on this front and the pace at which price and import controls are being lifted may well surpass most expectations. The sector transition towards a new market structure provides a definite deregulation upside for all OMCs in the next two years.

Company Performance and Outlook

Company Performance and Outlook: Review of recent performance with a short to medium term view on the company

PSO's increased focus on retail marketing is beginning to show positive results. This, combined with a virtual monopoly on furnace oil distribution, has boosted profitability in the last few months.
Currently, we are forecasting a 10% YoY growth in profit after tax for FY01; this is despite an impressive 57% increase in the first six months (over the corresponding period last year) primarily because we are not anticipating any major price increase in regulated products before June 2001. This will keep the company from booking heavy inventory gains, as it did in the first half, hence growth in the second half will remain limited to performance in sales volumes.Going forward, we foresee some suffering on account of furnace oil volumes as consumers opt for a cheaper substitute in natural gas (KESC units at bin Qasim are due for conversion within this year); however deregulation will offer PSO ample opportunity to better its margins before others enter the market.
Our DCF fair value for PSO is Rs194, offering a 22% upside from its current level. Accumulation around thsese levels would make sense for long term value investors; in the shorter term, however, we do not see much room for a major price upside.

Valuation Statistics (@ current price*)

Earnings per share (EPS): Earnings available for common shares / Common shares outstanding

Price – earnings ratio (P/Ex): Price per share / Earnings per share

Cash flow per share (CFPS): Cash flow from operations after taxes / Common shares outstanding

Price/CFPS: Price per share / Cash flow per share

Book value per share (BVPS): Book value of common equity / Common shares outstanding at balance sheet date

Price to book value (P/BVPS): Price per share / Book value per share

Dividend per share (DPS): Total annual dividends paid to common shareholders / Common shares outstanding

Dividend yield: Dividend per share / Price per share

Economic Value Added (EVA): NOPAT – (WACC)(Capital), where, NOPAT = EBIT (1-tax rate)

FY98A

FY99A

FY00A

FY01F

FY02F

12.9

18.7

15.6

17.2

21.4

-10%

45%

-16%

10%

25%

6.47

5.78

5.65

4.81

4.00

8.1

3.8

22.6

28.4

34.6

19.6

42.1

7.0

5.6

4.6

46.1

57.3

62.9

69.0

77.5

3.44

2.76

2.52

2.29

2.04

7.2

6.3

6.1

5.1

4.2

6.3%

9.8%

0.9%

2.5%

3.6%

Relative Valuation

Rel. P/Ex

Rel. P/CFSx

Rel. P/BVSx

Rel. Div. Yld

Peer
Market
Peer
Market
Peer
Market
Peer
Market

FY98A
12
6.47
19.6
3.44
19.6
7.2
5%
5%

FY99A
8
5.78
42.1
2.76
42.1
6.3
6%
5%

FY00A
10
5.65
7.0
2.52
7.0
6.1
6%
8%

FY01F
9
4.81
5.6
2.29
5.6
5.1
7%
7%

FY02F
7
4.00
4.6
2.04
4.6
4.2
8%
2%

Relative performance

1 month
1.12

3 month
0.99

12 month
0.81

Trading Data (previous 12 months)

52 week Low - Low price over the previous 12 months

Average daily volume - Average number of shares traded per day, over the last twelve months

Shares outstanding - Total number of ordinary shares of the company at present

Market Cap - The total value of all outstanding shares in the market; computed as number of shares times current market price.

Beta: Measure of the sensitivity of the stock to market conditions

Free Float: The percentage of stock that can be held by the public

271.50

130.00

15.78

142.93

22.63

383.49

1.43

16%

Financial Highlights

Rsm

EBIT: Earning Before Interest and Tax

FY98A

FY99A

FY00A

FY01F

FY02F

77,719

61,697

102,467

144,531

153,601

4,834

5,245

5,670

6,523

7,621

3,119

3,497

3,562

4,121

4,921

1,846

2,671

2,231

2,455

3,060

25,186

21,681

26,282

30,650

31,535

29,165

25,635

30,794

35,515

37,138

888

958

1,124

1,160

1,201

6,586

8,184

8,986

9,868

11,071

1,106

1,636

2,151

2,872

3,147

Key Ratios

Gross Profit margin: Gross profit / Sales

Net profit margin: Profit after tax / Sales

Return on equity (ROE): (Profit after tax) / (average common equity)

Return on Capital Employed (ROCE): Earnings before interest, depreciation and amortization / Net assets

Weighted-average cost of capital (WACC): The cost of each component of capital used by the firm multiplied by the proportion of that component in the firm’s capital structure

Long-term debt to equity: Long-term debt / common equity

Interest coverage: Earnings before interest and tax /Financial charges(X)

Inventory days: Inventory / (Cost of goods sold / 365)

FY98A

FY99A

FY00A

FY01F

FY02F

4.0%

4.5%

4.2%

3.9%

4.2%

1.5%

2.3%

1.7%

1.5%

1.7%

10.8%

-4.7%

16.8%

23.0%

9.96%

-17.9%

11.9%

2.3%

17.5%

20.1%

28.0%

32.6%

24.8%

24.9%

27.6%

28.6%

30.8%

21.9%

24.3%

25.5%

22.3%

21.0%

20.9%

21.8%

0.1

DCF Valuation

Rs per share

*Last updated: 20th February 2001

E-mail: research@taurus.com.pk

The above information and advice is given in good faith, without any legal responsibility. Taurus Securities Limited or individuals connected with it may have used research material before publication and may have positions in or may be materially interested in the securities mentioned herein.

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