Corporate Office:
Dealing Room Ph:
6th Floor, Progressive Plaza,
Beaumont Road, Karachi
UAN: (92 21)111 82 87 87
Fax: (92 21) 5686279
E-mail: research@taurus.com.pk
www.taurus.com.pk
(92 21) 5682690
5662817
5682559
5681420
TAURUS
SECURITIES LIMITED
Corporate Member: Karachi Stock Exchange
Morning Briefing
Thursday March 17, 2005
Volume Leaders
Oil & Gas Dev.
Pak PTA Ltd.
National Bank
Active Issues
Advanced
Declined
Unchanged
Market - Last 5 days
Market Cap.
Volume (m)
Index
10500
10000
9500
9000
8500
8000
7500
7000
6500
6000
5500
1600
1400
1200
1000
800
600
400
200
0
Volume
Thu
Fri
Rs
Rs
69
66
KSE-100 Index
Shares Traded
Value Traded
102
245
40
Index
72
Mar 15
Tue
179,589,200
175,930,500
48,176,300
Mon
Tue
Wed
FIBOR & Kerb US $
rates
Kerb
FIBOR
Buy
10,303.1 10,077.9
632.1
666.7
64,779.0 64,573
1,088.7 1,084.9
2,813.4 2,748.6
47.3
46.2
%
Change
ò
ñ
ò
ò
ò
ò
2.2
5.5
0.3
0.4
-2.3
-2.3
Gainers
Pak PTA Ltd.
Bank Alfalah
Chakwal Cement
Losers
TRG Pakistan
Fauji Cement
Pak Petroleum
Rs
∆ %
15.75
8.3
57.35
7.5
9.85
0.5
Rs
∇ %
16.40
-5.8
18.30
-5.2
299.20
-5.0
Market Overview
The market was extremely volatile on Wednesday, the KSE-100 Index started the day
gaining over 200 points to 10,511 then fell 549 points from its high before recovering
slightly to end the day down 225 points at 10,078. Volumes remained brisk at 667
millions shares. The dramatic drop in the index from its intraday high can be
attributed to selling by weakholders. OGDC fell by almost Rs4 to Rs186, POL slipped
by Rs17 to Rs329.30 and PPL shed almost Rs16 to Rs299.20. PSO dropped by Rs19 to
Rs469.85. Secondary stocks were also under selling pressure. The only actively
traded stocks to post gains on Wednesday were PakPTA, Bank Alfalah and Chakwal
Cement. PakPTA was the top gainer as it appreciated by slightly over 8% to Rs15.75
and the top decliner was TRG as it shed over 5% to Rs16.40.
We advise taking a wait and see approach to determine if the market will see support
today or will there be further correction.
63
60
57
54
Mari Gas Company Review
51
48
Jan-99 Jan-00 Oct-00 Jun-01 Mar-02 Dec-02 Sep-03 May-04 Feb-05
Yield curve
16-Mar-05
9-Mar-05
16-Mar-04
10%
8%
Mari Gas Company at Rs139.9 is trading at a trailing PEx of 9.9x, well below other
E&P sector peers such as OGDCL (35.7x), PPL (31x) and Pakistan Oilfields (17x).
This is because its earnings are regulated and growth is limited by the company's
Wellhead Gas Price Agreement.
Earnings Mechanism
6%
4%
Check www.taurus.com.pk for:
Ratings Guide
Latest Financial Results
Sector & Company Reports
Term Finance Certificate (TFC) Data
Market Data
10-y
5-y
3-y
365-d
180-d
90-d
30-d
14-d
7-d
2%
0%
m
Rs m
US$ m
Rs b
US$ b
Mar 16
Wed
Under the Mari Gas Wellhead Price Agreement, Mari Gas Company's earnings are
regulated through a formula which limits earnings to 30% of Shareholders' Funds
(paid up capital, reserves and undistributed percentage return reserve), plus an
additional 1% of shareholder's fund for every additional 20mmcfd of gas production
above 425mmcfd up to a cap of 45% of shareholder's fund. In addition, the company
is allowed to claim a portion of capital expenditure as part of earnings.
1) The Shareholders' Fund stands at Rs528m and 30% of this is Rs158m. This is
mostly a fixed component of earnings which can be calculated in advance and does
not vary from year to year unless there is a change in the Shareholder's Fund such
as through the issue of bonus or rights shares.
2) Every 20mmcfd of production over 425mmcfd will add Rs5.28m to earnings
The above information and advice is given in good faith, without any legal responsibility. Taurus Securities Limited or individuals connected with it may have used
research material before publication and may have positions in or may be materially interested in the securities mentioned herein.
Corporate Office:
6th Floor, Progressive Plaza,
Beaumont Road, Karachi
UAN: (92 21)111 82 87 87
Fax: (92 21) 5686279
E-mail: research@taurus.com.pk
www.taurus.com.pk
Dealing Room Ph:
(92 21) 5682690
5662817
5682559
5681420
TAURUS
SECURITIES LIMITED
Corporate Member: Karachi Stock Exchange
(prorated), calculated as 1% of FY04 Shareholders' Fund. If production of 448mmcfd seen in
the Jul-Dec'04 period continues for the rest of the year, the company's earnings should be up
by Rs6m from the additional production in FY05.
3) The capital expenditure component that contributes to earnings is an unknown variable,
which stood at Rs370m in FY04 and Rs507m in FY03. This amount is not distributable as
dividend.
Parts 1) and 2) of the earnings calculation above are capped at 45% of shareholders' Fund, or
Rs237m, and are estimated at Rs164m for FY05 (FY04: Rs149m).
As mentioned, Part 3- the capital expenditure the company is allowed to show as part of it
earnings- is an unknown, and this is the primary driver of earnings variation for the company.
Production changes have a much smaller impact on earnings. In FY04, the company had
higher allowable capital expenditure because it was developing the Mari Deep Gas Reservoir,
earnings were also therefore higher at Rs646m that year. This subsequently fell in FY04 and is
expected to be even lower for FY05. We have assumed Rs320m for the FY05 earnings calculation
to arrive at estimated earnings of Rs484m (EPS: Rs13.2).
Dividend Capped at Rs3 per share
Dividend payout is capped at 30% of Shareholder's Fund, excluding the Undistributed Percentage Return Reserve and the capital expenditure allowance which is non-distributable. This
translates into a dividend payable fixed at Rs110m (DPS: Rs3 per share)
Mari Gas - Derivation of PAT
Paid up capital
Reserves
Undistributed Percentage Return Reserve
Shareholder's Fund (Rsm)
FY03
367.50
2.05
120.72
490.27
FY04
367.50
2.05
158.13
527.67
FY05E
367.50
2.05
211.63
581.18
FY06E
367.50
2.05
281.81
651.35
Production (mmcfd)
428.20
434.46
448.00
448.00
138.5457
0.74
506.73
646.01
147.08
2.32
370.42
519.81
158.30
6.07
320.00
484.37
174.35
6.68
320.00
501.04
14.14
3.02
13.18
3.02
13.63
3.02
3 Components to Earnings Calculation
1) 30% of Shareholder's Fund
2) Return for Additional Production
3) Allowable Capital Expenditure*
Profit (Rsm)
EPS (Rs)
DPS (Rs)
* Estimated figures for FY05 and FY06.
17.58
3.00
Possible New Discoveries
Analyst: Wajahat Ali
Email: wajahat@taurus.com.pk
We have heard rumors that Mari Gas has discovered additional gas reserves in two fields in the
Mari area. The company has not itself made a statement on the discoveries, but if true, an
announcement could be issued within the next few weeks. The size of the discoveries is unknown, but could be over 1 tcf. We are attempting to verify the veracity of this information. The
impact of any sizeable discovery on Mari Gas Company's earnings and valuation is mitigated
however by the company's Wellhead Price Agreement, and shareholder's will not be able to
benefit from a higher payout even if earnings were to rise substantially due to the cap on
dividends.
Continued on Page 3
Corporate Office:
6th Floor, Progressive Plaza,
Beaumont Road, Karachi
UAN: (92 21)111 82 87 87
Fax: (92 21) 5686279
E-mail: research@taurus.com.pk
www.taurus.com.pk
Dealing Room Ph:
TAURUS
SECURITIES LIMITED
(92 21) 5682690
5662817
5682559
5681420
Corporate Member: Karachi Stock Exchange
News Snapshots
India voices caution over gas import: India's Oil Minister said on Wednesday that the
country would import gas only if it is reasonably priced, sounding a note of caution after launching moves to build transnational pipelines. (BR)
Government to offer more Islamic bonds: Inspired by the good response on Sukuk bond,
the economic managers of the government announced on Wednesday that Pakistan will keep on
testing its popularity in the world market by offering more Islamic bonds. (BR)
T-bill yields rise: In its T-bills auction, the SBP on Wednesday accepted bids worth Rs79.3b
against its target of Rs50b in 3-month and 12-month respectively. The SBP raised Rs76.33b
through the sale of 3-month T-bills and raised the cut-off yield by 27bps to 5.01% and Rs2.45b was
raised through the sale of 12-month T-bills, which increased the cut-off yield by 46bps to 5.95%.
(BR)
LSE, ISE approve merger to form NSE: The Board of Directors of the ISE on Wednesday
approved the proposed merger of ISE and LSE. The board has also accorded approval to a proposal
for creation of a new company that would run the affairs of National Stock Exchange. (Daily
Times)
PIB's to boost capital markets: The State Bank of Pakistan (SBP) will be permitting "Stripping of coupons" of Pakistan Investment Bonds (PIBs) from next financial year. (The News)
PICIC Energy Fund: PICIC Energy Fund (PEF) will float its shares worth Rs750 million. The
paid-up capital of PEF will be Rs1 billion. An amount of Rs750 million will be arranged through
pre-IPO while Rs250 million will be raised through the initial public offer (IPO) with a green shoe
option of Rs500 million. (The News)
Oil hits USD56 per barrel: World oil prices soared to a new record above USD56 after falls to
US crude stockpile and despite output hike by OPEC. (Dawn)