KARACHI: Ever since it announced that it was shelving plans to acquire Chevron’s assets in Pakistan, Attock Petroleum Limited (APL) has seen its stock price jump 14% at the Karachi Stock Exchange (KSE). Investors expect a strong payout with the full-year results for the fiscal year ended June 2013, Elixir Securities, a brokerage firm, has reported. Elixir believes the company will continue to post strong returns in fiscal 2014 (FY14).
The brokerage firm says the stock offers an upside of 4% to its June 2013 target price of Rs600 per share, along with an expected dividend yield of 8% in FY14. Adjusting for the FY13 cash dividend (expected in the near term), the stock offers a one-year return of 21%, it said.
Elixir Securities expects that the earnings of APL will grow at a three-year compounded annual growth rate (CAGR) of 10% from FY14-16. Its earnings growth assumption are based on 8% growth in core profits, coupled with a slowdown in growth of operating expenses and lower finance costs after the reduction in circular debt. Operating costs are estimated to increase by 10% annually going forward, as compared to the CAGR of 33% over the last three years.
Owing to stellar growth in retail outlets during FY2005-2013, APL retail volumes have increased at a higher-than-industry CAGR of 22%. But despite addition of 41 outlets in FY13, APL’s volumes have fallen by 12%. We expect FY13 retail outlet expansion to reflect in volumes in FY14.
Asphalt sales have remained subdued over the last few years because of low demand from the public sector, Elixir Securities says. Implementation of new motorway projects announced in FY14 budget would likely support volumes and earnings of APL, says the note. “We have assumed a meagre growth of 4% in asphalt volumes from FY14 onwards.”
“In case asphalt volumes increase to FY10 levels of 282,000 tons, APL’s FY14 earnings would increase by 13% from our base case to Rs66 per share,” the note said.
The company had started due diligence for acquiring Chevron in November 2012, and skipped interim dividends with the half-year financial results. Since it has decided to shelve the plans for now, it will have funds available to invest and/or redistribute. The recent reduction in circular debt would also provide a bump to distributable cash. “We thus expect a full-year cash payout of Rs45 per share,” the report said.
Published in The Express Tribune, July 10th, 2013.
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