KARACHI, Sept 29: Sui Southern Gas Company Limited (SSGC) is expected to declare cash dividend at Rs1.75 (17.50) per cent and post 6-10 per cent drop in net earnings for the financial year ended June 30, 2003.
That was the consensus forecast of analysts at randomly selected five brokerage houses on Monday. The SSGC Board is set to meet on Tuesday to consider the audited accounts for the year ended June 30, 2003 and recommend appropriation of profit.
KASB, Taurus, Global, InvestCap and Capital One, stood united in the dividend forecast at 17.5 per cent — same as last year, though KASB added: “However, given that the government is planning to divest 5 per cent shares through public offering, the dividend announcement might carry a surprise”. A day before the board meeting, the share in SSGC slipped by Rs1.25 to hit Rs24.35, but that could have more to do with the overall stock market slump of 175 points on Monday. At the current price, the SSGC stock offers cash yield of 6-7 per cent.
A year ago, SSGC had made after tax profit of Rs1.44 billion. No one really thought that the utility would be able to touch that mark for financial year 2003 and analysts were visualizing decrease in net earnings. The projected figures varied, but the major reason for the expected decrease in earnings was the same: Reduction in operating assets, after the sale of gas purification plant at Sui to Pakistan Petroleum Limited. Since the company’s profitability was linked to net operating assets, divestment of gas purification plant would reflect negatively on SSGC’s FY03 results, analysts said.
KASB expected 12 per cent drop in profit after tax to Rs1.27 billion. InvestCap recalled that the utility had posted net earnings at Rs0.89 billion for three-quarters of FY03, which was lower compared to the corresponding period of the previous year. InvestCap put forth after tax figure for all of the year between Rs1.26 and Rs1.30 billion. Analysts at Global were handing out possible taxed earnings numbers at Rs1.97 billion, while Taurus forecast taxed profit to amount to Rs1.33 billion. Capital One said that there could be 6-9 per cent drop in profit after tax to Rs1.44 billion, but the brokerage observed: “However, the sale of gas purification plant at Sui has led to a substantial rise in cash inflows from the sale of fixed assets to Rs664 million during nine-months FY03 from Rs5 million in the corresponding period of last year”.
Most analysts observed that the company had plans to spend Rs34 billion on expansion of its existing gas transmission and distribution infrastructure over the next five years with positive impact on the bottomline. The company operates on formula of 17 per cent fixed return on average fixed assets. Major portion of capital expansion was likely to be incurred on enhancing SSGC’s pipeline network from new gas fields that had now begun operations. “With the power sector looking towards inexpensive sources of supply, we believe that SSGC will find two ready buyers in Wapda and KESC”, said KASB. Analysts said that overall decline in interest rates also were likely to add to the profitability of the company as majority of the company debt was on floating rate basis. Aggressive financial management was visualized to show interest cost savings of around Rs30-50 million in FY’03 as the company had been able to refinance its fixed rate loans at much cheaper rates.
Meanwhile, SSGC confirmed through a press release that the board meeting was scheduled for Tuesday. “The accounts have already been reviewed by the Audit Committee of Directors on September 22, 2003 and cleared by the Oil and Gas Regulatory Authority (OGRA) in a ‘True-up’ of its tariff”, the SSGC said, and added that the company’s ‘retainable’ gas price was determined by OGRA at the beginning of the year, which was adjusted for ‘true-up’ on the basis of provisional audited accounts. SSGC stated that it had managed to have the OGRA clearance on a timely basis to enable it to convene the Board Meeting and the Annual General Meeting of its members within time frame permitted under the Companies Ordinance.