1HCY11 EPS expected at PKR25.50: Shell is scheduled to announce its financial results for 1HCY11 on August 17, 2011. We expect the company to post profit after tax of PKR988mn (EPS: PKR14.43) for 2QCY11, up 30% QoQ and 211% YoY, which shall take 1HCY11 earnings to PKR1.7bn (EPS: PKR25.50), up 143% YoY. We also expect payout of PKR7/share with 1HCY11 results.
Improved 1HCY11 volumes despite dismal 2QCY11: Shell’s volumes increased by 5% YoY during 1HCY11, primarily driven by FO and Jet Fuel which were cumulatively up by 23% YoY during 1HCY11. 2QCY11 volumes, on the other hand, declined by 12% YoY owing to 70% YoY lower FO sale along with weak HSD sale which was down by 9% YoY. However, due to 13% YoY higher product margins and estimated inventory gains of PKR1.4bn, gross profit is expected to grow by 16% YoY during 2QCY11.
Opex/GP ratio expected to decline: 76% QoQ plunge in FO sale in 2QCY11 shall resultantly decline secondary transportation cost and ensuing distribution cost. Thus we expect Opex/GP to decline to 51% amid 32% YoY higher expected gross profit during 1HCY11 from 65% in the corresponding period of last year.
Investment perspective: At yesterday’s closing price, the scrip trades at a premium of 9% to our Jun-12 PT of PKR200/share and offers CY11 dividend yield of 10%.
Improved 1HCY11 volumes despite dismal 2QCY11
Despite of 3% lower HSD, Shell’s volumes were up by 5% YoY during 1HCY11, primarily due to FO and Jet Fuel which were up by 34% and 19% YoY, respectively. Entire of the growth in volumes came in the 1QCY11 as 2QCY11 volumes were down by 12% primarily due to 70% plunge in FO sale coupled with 9% decline in HSD volumes. However, dismal 2QCY11 volumes are expected to be offset by 13% YoY higher margins per ton and estimated inventory gains of PKR1.4bn during 2QCY11. In addition, 9% YoY higher Lube volumes, which is responsible for more than 40% of Shell’s core earnings, are also expected to cover up part of lower energy product sales. 1HCY11 lube volumes were up by 2% YoY.
Opex/GP ratio expected to decline
Secondary transportation cost, which is mainly driven by FO volumes, is expected to decline in 2QCY11 on the back of 76% QoQ lower FO sale. Thus, with lower transportation cost amid 32% YoY higher expected gross profit; Opex/GP ratio is expected to decline to 51% in 1HCY11, compared with 65% in corresponding period of last year.
Economic & Political News
Inflow of foreign investment dips 60.8%in July
The net inflow of foreign investment has shown a decline of 60.8% to USD61.9mn in fiscal year July 2011-12 as against USD157.8mn in the same period last fiscal. The net inflow of foreign investment is broken into two parts – foreign direct investment (FDI) and foreign portfolio investment (FPI). The FDI slipped 17.2% to USD90.9mn as against USD109.8mn, while FPI fell 160.4% to USD29mn as compared with USD48mn.
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