KARACHI, April 27: On Tuesday morning, Pakistan State Oil (PSO) announced financial figures for the third quarter ended March 31, 2004. The company posted after tax profit amounting to Rs897 million for 3QF04 and Rs3.02 billion for nine-months July-March 2003-04.
The earnings fell short of market expectations. A sample of at least four stock brokerage firms showed that almost all were looking forward to the company to earn at least a billion rupees in taxed profit for the third-quarter and considerably more than Rs3 billion for nine months.
InvestCap had projected nine-month net earnings at Rs3.40 billion; Jahangir Siddiqui Capital Markets Rs3.34 billion; Arif Habib Securities Rs3.18 billion and Taurus Securities Rs3.04 billion.
The board also declared the second interim dividend at 30 per cent per share, which was what everyone was expecting. The company had earlier paid the first interim at 70 per cent, which together with the second interim payout made a total dividend of 100 per cent for the three-quarters under review.
On the current stock price, the dividend gives a decent yield of 6.7 per cent, which is close to the market yield of 7 per cent. But investors continued their neutral outlook on the PSO stock, which slipped by Rs4.25 on ex-dividend price to Rs270.50 on Tuesday, from Rs274.75 at the earlier day's closing.
On the annualized earning per share (eps) of Rs23.47, the share in PSO is trading at the price-to-earnings ratio of 11x, which is slightly expensive against the market p/e of 10x. Net sales for the nine-months to end-March declined 14 per cent to Rs111.6 billion.
The board chaired by Pervaiz Kausar, issued a statement on Tuesday alongside the financial figures. It said that during July-March 2003-04 period, the company sold around 6 million tons of POL products.
Directors said that the nominal decline in earnings was due to loss of fuel oil business as a result of further improvement in the natural gas availability and hydel generation.
"Had PSO sold similar volume of fuel oil during the review period, the company would have not only exceeded sales revenue but would have also posted much higher earnings over the corresponding period", directors contended.
Directors report further noted that the declining consumption trend countrywide in fuel oil persisted during the quarter. "However, the impressive performance of the company in white oil sales and stringent cost cutting measures undertaken by the management almost neutralized the impact of black oil decline", said the directors.
White oil consumption showed growth of 5.4 per cent but fuel oil consumption had experienced huge 56 per cent decline over the previous year's volumes, which, had caused POL industry to shrink by 21 per cent.
During the period, PSO increased its market share in Mogas to 44 per cent from 42 per cent last year. In HSD, the company raised its share to 60.3 per cent.
But for all that it is difficult to brush aside the disappointment of the market on PSO's Q304 results. Analysts at Jahangir Siddiqui Investment had anticipated improvement in profitability as a result of combined effect of rise in company's white oil sales volumes and inventory gains following surge in domestic and global petroleum prices during Q3, in spite of the nationwide plunge in fuel oil demand.
But analyst at KASB Securities did not expect the kind of inventory gains to materialize in 3Q of the current year, as had happened in the same period of last year. Analysts at Taurus Securities had hoped that there would not be "a major dent on PSO's earnings despite a 30.1 per cent overall sales volume decline in 8mths04."
Improvement in gasoline, HSD and Aviation fuel (JP-1) sales volume was expected to partially offset the loss from declining furnace oil demand. Arif Habib Securities stated that despite the substantial reduction in furnace oil demand in the country, it was expected that the company would maintain its previous year earning owing to comparatively higher oil prices during this period both in domestic and international market.
And InvestCap had expected 8-9pc increase in profit for 3Q04, against the same period last year, due to strong oil prices and increase in market share of white oil products by the company.