Shell Pakistan earnings likely to soar by 12 percent

Shell Pakistan Limited's earnings are expected to soar by 12 percent to Rs 2,739 million translating into an earning per share (EPS) at Rs 62.50 in FY06 compared to FY05 profit after tax and EPS at Rs 2,451 million and Rs 55.92 respectively. The meeting of the company's board of directors for the FY06 financial results is scheduled to be held on Monday (August 07).
Higher sales volumes and inventory gains during the last quarter are to support the earnings growth. The analyst anticipated net sales of the company to stand at Rs 122 billion, depicting 24 percent upsurge as against Rs 98 billion previously.
They also expected the financial results to accompany final cash dividend at Rs 27/share, taking the cumulative payout to Rs 35 during FY06, Faisal Khatari, of Live Securities said.
Shell Pakistan's July-March, 2006, earnings marginally increased by two percent to Rs 1636 million as against Rs 1600 million during the same period last year. This translated into an EPS at Rs 37.34 compared to Rs 36.51 last year. Net sales of the company surged by 23 percent to Rs 86,525 million compared to Rs 70,438 million during the corresponding period last year. However, a 24 percent increase in cost of goods sold resulted in a 100 pbs decline in gross margins, thereby limiting the increase in gross profit to 10 percent.
During the July-March 2006 period, OMC industry sales volumes declined approximately seven percent due to the sharp plunge in fuel oil sales and across-the-board decline in other petroleum products.
Administrative and marketing expanses and financial charges of the company also depicted upsurge at 24 percent and 26 percent to Rs 3,002 million and Rs 287 million respectively. During the January-March 2006 period, earnings of the company depicted 35 percent decline to Rs 445 million (EPS Rs 10.15) compared to Rs 684 million (EPS Rs 15.60) during the corresponding period last year primarily on the back of lower margins and relatively volatile international prices.
Despite depicting lackluster growth during the third quarter of FY06, earnings are anticipated to increase primarily on the back of approximately seven- percent increase in petroleum prices during the last quarter of FY06.
An increment in petroleum prices leads to inventory gains and translate into higher rupee margins. After freezing oil prices for almost seven months, the petroleum price regulating body, Ogra, finally decided to lift the cap in May 2006 due to the firming international oil prices on the back of global demand-supply imbalances.
The recent financials of the company also stated that the company has won contracts of some key foreign airlines, which could boost the sales of Jet Fuel. Moreover, revive in the domestic petroleum demand coupled with the company's strategy to focus on CNG and lubricants is also expected to bode positively for the bottom-line.