PSO’s earnings expected to dip in next fiscal year

PSO’s earnings are likely to fall by eight per cent in the coming fiscal year 2011 on the recent revision in oil prices and current year’s sales data, according to KASB Securities.

The eight per cent dip will result in Pakistan State Oil (PSO) performing marginally lower in fiscal 2011 compared with the current year.

Estimates on the other hand have been raised by one to two per cent for fiscal 2012 and 2013, said KASB Securities analyst Mohammad Fawad Khan.

The Bank of America Merrill Lynch commodity team has revised down its oil price assumption to $78 per barrel from $92 per barrel for the second half of 2010 while maintaining long-term oil price assumptions of $85 and $80 per barrel.

Margins on diesel, 34 per cent of volume, are fixed in rupee terms and hence remain unaffected by the current revision in oil prices.

Furnace oil, gasoline and kerosene make up 60 per cent of PSO’s total volumes.

Encouraging volume data in 11MFY10

PSO has increased its market share to 70 per cent this year from 69 per cent a year ago on the back of strong furnace oil and aviation fuel sales.

PSO volumes jumped eight per cent against the industry growth of seven per cent during the period.

Market share recovery in transportation fuels and a strong furnace oil performance should lead to four-year volume Compound Annual Growth Rate (CAGR) of four per cent, said Khan.

Inventory losses feared

Recent volatility in oil prices had stoked fears of inventory losses but a recovery in oil prices in the last two weeks should address market concerns.

Inventory losses of Rs1 or 2 per share, three per cent of earnings, are expected based on oil prices of $73 to $74 per barrel in the last quarter of fiscal 2010.

PSO has received Rs4.4 billion in the last two quarters in the form of interest income on overdue receivables, bringing down its effective interest expense by 31 per cent in the nine months of the current fiscal year fiscal 2010.

Published in the Express Tribune, June 18^th, 2010.