PPL: Higher wellhead prices to lever up 1QFY12 EPS 22% YoY to PKR7.18

Result Expectation: PPL’s board is scheduled to meet on October 24th to consider financial result for 1QFY12. We expect the company to post an EPS of PKR7.18, up 21% YoY, driven by strong growth in oil and gas wellhead prices coupled with stellar other income.

Net Selling Price to rise 19% YoY: With 12% YoY increase in gas wellhead price and 43% YoY growth in oil wellhead, 1QFY12 Net Selling Price (NSP) will likely rise by 19% YoY. Higher share of oil in revenue mix, from 20% in 1QFY11 to 26% in 1HFY12 will also lend support.

Volumes to edge up by 5% YoY: We expect PPL’s hydrocarbon sales to edge up by 4% YoY due to 2.7% growth in gas production and 15.5% growth in oil volumes.

Field expenditure to rise 36% YoY; other income to jump 48%: Field expenditure would likely rise 36% YoY due to base effect as 1QFY11 field expenditure formed a mere 21% of full year cost. On the other hand, 30% YoY growth in average cash balances will leg up interest income by 48% YoY.

Recent price correction has made valuations attractive: PPL has corrected by 10% 2QFY12 to date, which has made valuations highly attractive. PPL currently trades at FY12 PER of 5.8x, and offers an upside of 38% to our Jun-12 PT of PKR235/share.

Net Selling Price to rise 19% YoY

1QFY12 Net Selling Price (NSP) will likely rise by 19% YoY, due to robust growth in oil and gas wellhead coupled with higher share of oil in revenue mix. Arab Light averaged USD109/bbl in 1QFY12, up 47% YoY, which would prop up oil wellhead by 43% YoY. A sharp 18% YoY growth in wellhead prices of Sui and Kandhkot would push PPL’s average gas wellhead price by 12% YoY. Share of oil in revenue mix would rise from 20% in 1QFY11 to 26% in 1QFY12, thus lending further support.

Volumes to edge up by 5% YoY

PPL managed to post 2.7% YoY growth in gas volumes despite 6% YoY decline in Sui production, mainly due to better flows from Kandhkot (+36% YoY)  and Tal (+10% YoY) and tripling of flows from Latif after commencement of Latif North-01 in 2QFY11. Oil volumes remained strong, rising by 15.5% YoY in 1QFY12. We expect PPL’s hydrocarbon sales to edge up by 4% YoY in 1QFY12.

Field expenditure to rise 36% YoY; other income to jump 48%

Field expenditure would likely rise 36% YoY due to base effect as 1QFY11 field expenditure formed a mere 21% of full year estimates. Exploration cost would likely remain high in 1QFY12. While 2D seismic acquisition at 243 line km on stake adjusted basis remained roughly ¼ of 1QFY11, 3D seismic acquisition was much higher at 162sq km. 1QFY12 3D seismic acquisition was 23% higher than total 3D seismic shot during FY11. On the other hand, 30% YoY growth in average cash balances and deployment of surplus cash in higher yielding term deposits / fixed income funds will leg up interest income by 48% YoY.

Economic & Political News

Textile exports increase 25% to USD3.5bn

The country’s textile exports have registered an impressive 25% rise to USD3.466bn during the 1QFY12. Growth emanated primarily from rise in unit prices.

Attempt to keep budget deficit under limit

The federal government has slashed development spending by around PKR25bn during 1QFY12 in an attempt to keep the budget deficit under manageable limits. The government had budgeted to spend PKR75bn under the Public Sector Development Programmed (PSDP) in the 1Q but it only released PKR49.3bn during the period.

Anwar appointed new SBP governor

On a summary moved by Ministry of Finance and on the advice of Prime Minister, President Asif Ali Zardari Wednesday approved the appointment of Yasin Anwar as Governor State Bank of Pakistan, according to a press release. Yaseen Anwar has been Acting Governor (SBP with effect from 18th July 2011) since governor Hafiz H. Kardar resigned.
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