MARI PETROLEUM COMPANY LIMITED MARI: Earnings Sustainability Cushioned by Less Susceptibility to Lockdown Disruptions and Volatile Oil Prices
We have tweaked our earnings for
Furthermore, owing to substantial rise in circular debt, MARI remains least exposed to circular debt where all the receivable pile up relates to GIDC and is exactly matched by rise in payables to GoP,
Our Dec-20 revised target price of
Limited earnings risk makes valuation attractive at current prices
We have tweaked our earnings for
1# Risk to earnings remain limited; fwd P/E of 5.9x trading below its historic mean of 9.3x
MARI is currently trading at FY21/22 P/E of 6.3/5.9x which is at a discount to current market multiple 6.7x and 7yr. average P/E of 9.3x. MARI is expected to post +21%YoY growth in FY20. However, post FY21 earnings are likely to sustain till FY23 on account of measures taken to arrest natural depletion at Mari field, whereas diversion of unutilized gas from Mari field on to SNGP network due to ATA or lower demand will also enable to achieve higher production under PP12 pricing.
2# Healthy Cash Generation with No or Negligible Ties to Circular Debt
MARI remains least exposed to circular debt owing to majority of sales to fertilizer sector where receivables account for GIDC and GDS which is reflected as payable to GoP. Only
Whereas strong cash generation with minimum cash tied to circular debt allows MARI advantage over its peer for risk diversion against natural depletion of reserves and volatile oil prices through availability of cash to diversify vertically upwards in petroleum sector or horizontally. As a result, MARI now holds nearly
3# Production and Pricing Least Impacted By Lockdowns and Volatility in Oil Prices
MARI remained relatively immune to lockdown during 4QFY20 as production from Mari field only declined by 5.5%QoQ out of which FPDCL and WAPDA reduced offtake due to lower demand. Moreover, with nearly ~98% of revenues derived through gas production, MARI remains largely immune to volatility in oil prices as well. Having said that, Mari fields gas production is up by +5% during 2HFY20 compared to 1HFY20 owing to smart production management.
4# Diversion of Gas Supply to SNGP Will Help Avoid Loss of Incremental Production
To mitigate the risk of natural decline in production of Mari field, the Company successfully drilled 19 development wells as planned before Dec-19 whereas second phase of debottlenecking of pipeline network is underway and expected to be completed by Aug/Sep-20. Though due to Covid-19, deliveries of additional pipelines faced delays however the management still expects the project to be completed well in time. Furthermore, to avoid loss of incremental production due to ATA of customer's plant or lower demand from WAPDA, MARI is underlying pipeline from Mari Daharki to National pipeline of SNGP with carrying capacity of 150mmcfd expected to be completed by Dec-20. This would allow diversion of gas from Mari field to SNGP network to avoid loss of incremental production which is priced under PP12.
Better cash availability to allow for risk diversification of natural depletion and volatile oil price risk
With huge cash generation and dividend cap till FY24, MARI is well poised to diversify its risks relating to natural decline in production and volatile oil prices. Thus, MARI plans to invest in different projects along with acquisition of few strategic blocks where through a combined consortium of national oil companies MARI has submitted bid for acquisition of ADNOC offshore block-5. Furthermore, similar ADNOC MARI is expected to participate in acquisition of blocks on sale by ENI.
MARI also plans to enter in to mineral exploration where NRL has offered MARI to join the consortium in Reko Diq Copper and gold mining for which MARI is currently in the process of conducting further due diligence. MARI signed a confidentiality agreement with FFC regarding pre-Feasibility study of Thar Coal gasification project and to participate in bidding for Thar Coal Blocks. MPCL has applied two blocks for acquisition of exploration licenses for Copper and Gold in Baluchistan.
MARI further plans to participate in the upcoming bidding process for two RLNG based power plants being privatized by the GoP. Furthermore, MARI has participate in acquisition of 49% stake in
Current price warrants long term value play; ~44% upside
MARI remains of one of our preferred long-term value play in E and P sector on account of healthy cash generation, least impacted by oil price volatility and remained highly immune to lockdowns amid Covid-19 outbreak. Thus, we maintain a BUY stance on MARI with our Dec-20 target price of
3q Financial Result
MARI reported EPS of
© Pakistan Press International, source
