Pakistan State Oil (PSO): Impressive earnings, but due to non-recurring components and growth prospects are weak – By EFG Research
<ul><li><span style="font-family:Arial, Helvetica, sans-serif;font-size:medium;">We transfer coverage of PSO and downgrade our rating to
Neutral given the lack of near-term growth and as its RLNG operation is suppressing
the stock’s valuation. At 6.1x FY21e P/E and 5.8x FY22e, we believe the stock
is fairly valued given a higher than normal nonrecurring component in FY21/22
earnings and a FY21-25e earnings CAGR of only c5.6%. Earnings are being driven
by penal income from power companies and lower finance costs. We expect PSO to
lose c2.0-4.0% market share annually (until FY23) in the retail business;
hence, organic growth will be hard to come, but margin increases by the way of
CPI linkage will help keep earnings stable. Furthermore, the 1% advance tax on
RLNG has squeezed all profits from this segment, while working capit...
