NRL: Strong lube margins to push FY11 EPS to PKR84.7

FY11 EPS expected at PKR84.7: As per our initial estimates, NRL is expected to post PAT of PKR1.9bn (EPS: PKR24) during 4QFY11, up 13% QoQ and 46% on YoY basis. Full year EPS is expected at PKR84.67 (up 106% YoY) against PKR41.08/share during FY10. NRL is also expected to pay full year dividend of PKR40/share during 4QFY11.

Stellar lube segment earnings expected in 4Q: During 4QFY11, average base oil price increased by USD218/ton QoQ to USD1,518/ton, ahead of the increase in its feedstock price (FO), which was up by USD107/ton to USD643/ton. Thus Base Oil-FO spread widened by USD110/ton to USD875/ton during 4QFY11, up 14% QoQ. We expect lube segment margins to jump by 27% to USD510/ton, which is estimated to yield an EPS of PKR20 during 4QFY11.   

28% jump in GRMs to yield attractive fuel business earnings: With 28% increase in 4QFY11 GRM, NRL’s fuel business EPS is expected at PKR4, against a loss of PKR4.5/share during the same period last year. This shall take full year fuel segment EPS to PKR14, compared with a loss of PKR8.8 during FY10.

PT revised to PKR430/share: We have revised up our Jun-12 PT by 16% to PKR430/share as we now assume a terminal growth rate of 3% (previously 0%). At yesterday’s closing price, the scrip trades at a discount of 19% and offers FY11 dividend yield of 11%, translating to total return of 30%. BUY!

FY11 EPS expected at PKR84.7

As per our initial estimates, NRL is expected to post PAT of PKR1.9bn (EPS: PKR24) during 4QFY11, up 13% QoQ and 46% on YoY basis. Thus, we expect full year earnings at PKR84.67/share, up 106% YoY. NRL’s FY11 full GRM at USD5.85/bbl (up 84% YoY) is the highest level since FY08, while the full year Base Oil-FO spread was significantly up by 42% YoY to USD746/ton compared with USD523/ton in FY10. NRL’s last two years average dividend payout remained at 57%, thus we expect it to pay dividend of PKR40/share for FY11.

Stellar Lube segment earnings expected in 4QFY11

During 3QFY11, average local base oil price jumped by USD218/ton QoQ (up 17% QoQ) to USD1,518/ton, while average price of FO (feedstock) increased by USD107/ton to USD643/ton (↑20% QoQ). Thus Base Oil–FO spread widened by USD110/ton to USD875/ton during 4Q, up 14% QoQ. With the increase in base oil spread, we expect lube segments margins to rise by 27% QoQ to USD510/ton, yielding an EPS of PKR20 (up 17% QoQ). We have assumed base oil sale at 52ktons for 4QFY11 based on April-May production data. Other income, which mainly composes of return on bank deposits and short term investments is estimated at PKR630mn, which shall take full year other income to PKR2.5bn (up 98% YoY).

28% jump in GRMs to yield attractive fuel business earnings

Using 4QFY11 GRM, which was up 28% QoQ (USD7.12/bbl), we have estimated 4QFY11 earnings at PKR4/share, compared with a loss of PKR4.5/share in the corresponding period last year. This shall take fuel business full year earnings to PKR14/share.

PT revised to PKR430/share

We have revised up our Jun-12 PT by 16% to PKR430/share as we now assume a terminal growth rate of 3% (previously 0%). At yesterday’s closing price, the scrip trades at a discount of 19% and offers FY11 dividend yield of 11%, translating to total return of 30%. BUY!

Economic & Political News

Gas utilities seek tariff hike of up to PKR22/unit

In spite of the fact that the country faces a prolonged gas crisis and 10 to 100% tariff increases are on the cards, gas companies have sought a separate increase of up to PKR22.48/mn British thermal unit (mmbtu) to generate PKR14.6bn in revenues to finance new gas schemes, which are contrary to the laws.

Govt plans to revive short-term savings certificate

In order to bridge financing of the ballooning budget deficit, the government plans to revive short-term savings certificate for three, 6 and 12 months period with minimum investment requirement of PKR10,000 from October
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