LAHORE –– While Attock Petroleum Limited (APL) posted an impressive earnings growth of 18%YoY in 9MFY11, the result came largely inline with expectations.
The company’s net sales increased by an impressive 17%YoY mainly owing to 1) expansion of its retail distribution network (MOGAS sales up 18%YoY) along with higher furnace oil sales (up 59%YoY). Though, Other Income rose by 72%YoY on account of recognition of interest income on dues receivables, the finance cost also jumped by 170%YoY (as the company expensed interest on its payables). Income from bank deposits and ST investments continued to further augment the bottomline, contributing 20% to the total profits.
While the company’s profits increased by 16%QoQ in 3Q, we expect a stronger 4Q ahead. We believe seasonal uptick in high margin asphalt sales along with rising margins on FO should boost profitability in 4Q. Historically, 4Q has contributed an average 33% to the full year profits.
Post the recent price momentum (26% since book closure on Oct 19, 2010), it is believed that the current market price reflects the fair value of the scrip and offers a limited upside (3%). However, it is expected a pre-announcement excitement to final cash dividend (estimate: Rs18.5/share) ahead. While the scrip trades at a discount of 14% to the market’s FY11E earnings multiple, it has historically traded at an average discount of 31% to the market.