By: Naveed Vakil, AKD Securities Ltd.
We raise full year FY12 estimates by 13% on lower exploration and adjustment in effective tax rate, with future earnings up by 7%-8% through forecast range. Alongside rollover, we raise our NAV-based target price for OGDC to PkR188/share up 6% from previous TP. Recent solid 3QFY12 performance with earnings of PkR6.43/share vindicates our view of a solid earnings outlook backed by a blend of volume and value growth as phased development monetizations are streamed online. Additional upside based on uptick in Qadirpur wellhead gas price will underpin a broader revision in estimates (ceiling adjustment to US$400/ton versus US$320/ton currently). That said, post result announcement, stock price has underperformed by 3.8% versus the broader market where recent news flow regarding potential utilization of OGDC’s funds for power sector TFCs risks undermining expected improvement in payout profile as well as exploration and development commitments. At current market price, the stock offers an upside of 13% – Accumulate.
Result Recap: Topline growth underscored higher realized prices as well as improvement in gas volumes with monetization of KPD phase I as well as plug in of Extended Reach Wells in Qadirpur. This was despite flat oil volumes with monetization of Naspha during 3QFY12. Lifting costs increased by 8% to US$2.50/boe versus last year remaining below average inflation. Lower effective tax rate (down to 29%) and higher other income (interest income and FX gains estimated at PkR1bn) also shored up earnings, underscoring our revision in full year estimates to target earnings growth of 47%.
Investment Perspective: Post result announcement, OGDC has underperformed the broader market by 3.8% where recent news flow regarding potential use of OGDC funds for power sector TFCs risks undermining future payout capacity and exploration and development commitments as well as overall perception in our view. That said, we retain conviction on OGDC where unfolding of news flow on exploration log as well as upside risks to estimates on wellhead gas price revision on Qadirpur should lead to broader upgrade in earnings revisions, triggering a round of price performance.