KAKRACHI, Nov 25: On Thursday, Sui Northern Gas Pipelines Limited (SNGPL) announced financial results for the year ended June 30, 2004, posting after tax profit at Rs2.297bn. The Board also proposed dividend at Rs2.50 (25pc).

Research teams at stock brokerage houses could not have done better. Almost all analysts who follow the energy sector, hit the bulls' eye, both in respect of earnings and dividend forecasts: A sample: Stock brokerage firm Jahangir Siddiqui Capital Markets Limited had forecast after tax profit at Rs2.371bn and dividend at 25pc.

KASB foresaw net earnings at Rs2.321bn and dividend between 24 to 25pc; InvestCap estimated earnings at Rs2.20 and dividend at 25pc and First National Equities Limited forecast profit after tax between Rs2.18 and Rs2.25bn and dividend at 25pc.

The market responded with a 60 paisa drop in the SNGPL stock price, which on Monday closed at Rs52.55 with trading seen in 7.7m shares. Earning per share (eps) stood at Rs4.60, which places the stock on price-to-earnings (p/e) multiple of 11.4x. Annual General Meeting (AGM) is scheduled to be held on December 29 at Lahore.

Analysts thought the company had done well in the face of negative impact of Oil & Gas Regulatory Authority's (OGRA's) decision to disallow some operating expenses. The gas Transmission and Distribution (T&D) companies are operating under a fixed return formula. Both Sui Southern Gas Company Limited (SSGC) and SNGPL must seek approval of their accounts from OGRA, which is the regulatory authority for the sector.

"Contrary to the previous laissez faire attitude, the regulatory authority has taken a very hard line this time", said Abdul Rasheed, analyst at InvestCap. He mentioned that SSGC had already come under the hammer and the company had taken a hit of Rs400m (eps: Rs0.58) on its profitability due to OGRA decision.

For SNGPL, the recent OGRA decision would mean a negative impact on operating profit of Rs500 to Rs525m. That would be due to adjustments mainly on account of disallowance of certain operating income (Rs155.7m).

The reduction in operating profit was expected to decrease other charges by Rs25.8m. "Hence, the OGRA decision will have a before tax impact of Rs475 to Rs500m and after tax impact of Rs310 to Rs325m (eps: Rs0.62 to Rs0.65)", estimated the analyst.

Atif Malik at Jahangir Siddiqui Capital Markets forecast 1QFY05 (July-Sept'05) profit at Rs640m, 11pc higher than Rs577m in the corresponding period of the previous year.

"Despite the negative impact of OGRA's decision, SNGPL's earnings growth is to be driven by capital expenditure plans and drop in financial charges", said the analyst. For the year ended June 30, 2004, financial charges had amounted to Rs969m, which represented a sharp 37pc drop from Rs1.531bn in the same period of FY'03.

Murad Ansari at KASB observed that after a long wait, OGRA had finalized SNGPL's FY04 accounts. According to the determination, OGRA disallowed Rs609m shortfall in revenues claimed by the company and had determined shortfall at Rs58m. Operating income was also increased by Rs155m for FY'04.

As for the actual numbers unveiled by the Board on Thursday, revenue from gas sales for SNGPL amounted to Rs64.3bn, which reflected 41pc jump from Rs45.5bn the previous year. Cost of sales increased by 68pc and pre-tax profit grew 14pc to Rs3.7bn.

After tax profit also increased by 14pc to Rs2.3bn, from Rs2.0bn. Earning per share improved to Rs4.60, from Rs4.03. Last year, the board had appropriated Rs1.1bn for dividend paid at Rs2.20 (22pc) per share. The sum was raised to Rs1.2bn as the dividend recommended by the Board had edged up to Rs2.20 per share paid last year.

Atif Malik at JSCML, quoting industry sources, observed that Pakistan was likely to face a shortfall of 300 to 500m cf/d of gas by 2010 due to growing domestic demand. Therefore, progress towards gas import projects was of extreme importance to meet future requirements.

For a long time now, the government had been considering three alternative gas import projects namely, the Turkmenistan-Afghanistan-Pakistan (TAP) project; Iran-Pakistan-India project and the Qatar gas project.