Shell Pakistan Limited big earnings turnaround underway – FS Research

Shell Pakistan Limited big earnings turnaround underway – FS Research

By: Muhammad Fawad Khan and Syed Ali Hassan

Foundation Securities (Pvt) Limited

Initiating with an Outperform rating and TP of PKR349.67/sh

We initiate coverage on Shell Pakistan Limited, Pakistan’s 2nd largest oil marketing company having market share of ~11%, with an Outperform rating and TP of PKR349.67. We eye a strong earnings turnaround over the next three years and believe 55% stock price run-up in one-mth is yet to fully reflect the new fundamentals which warrant much higher valuation.

Key reasons for Outperform rating

#1-3x jump in bottom-line

We project 3-year earnings CAGR of 55% under conservative set of assumptions driven by four key drivers. We contend earnings turnaround is largely sustainable. We base our thesis on;

1-Strong uptick in volumes: Shell’s focus on relatively higher margin transportation fuels (HSD, MS, JP) have started to bear fruits as double digit volume growth of 13% in CY13 overshot industry growth of 10%.Medium-term outlook on these products is favorable and should help Shell to undergo 8% volume growth over three years.