Insight Research has just released an update on its coverage of Oil & Gas Development Company Limited (OGDC) stock. The research house has raised its Dec 24 OGDC target price to Rs. 189 per share.
Here are the key points from the report:
The target price for OGDC has been revised to PKR 189 per share, indicating a potential upside of 42%. Additionally, the stock offers a 12% dividend yield. The investment stance on OGDC remains positive, supported by the company’s ongoing efforts to boost production and address operational challenges.
OGDC has been actively working on several new projects to counteract the natural decline in production. Significant discoveries have been made at wells such as Toot Deep-1, Chak-214-1, Kharo-1, Togh-02, and Dars West Well-02. Major fields like Nashpa and Kunnar Pasakhi Deep are undergoing production enhancements to increase output.
OGDC is also implementing multiple compression projects, such as the Dhakni compression project, KPD-TAY, and Jhal Magsi South, which are expected to result in incremental production.
OGDC has been significantly affected by circular debt, impacting its financial metrics. The company’s P/E ratio has declined from 9.7x in Jun’18 to around 2.4x (TTM). However, there has been some improvement in the payment cycle from Sui companies:
OGDC is currently trading at an EV/EBITDA of 1.1x, compared to its 10-year historical average of 3.7x. This indicates a strong potential for re-rating as the financial situation improves.
OGDC plans to increase its crude oil production to 50,000 BPD by FY28. The company has outlined a five-year plan, with incremental production targets as follows:
| Fiscal Year | Incremental Production (BPD) |
|---|---|
| FY25 | 9,379 |
| FY26 | 12,104 |
| FY27 | 16,286 |
| FY28 | 19,583 |
Several risks could affect the valuation of OGDC:
OGDC’s payout ratio has historically been around 40% (FY10-FY18) but has recently fallen to 25% due to the buildup of trade debt. This surge in trade debt was mainly attributed to inadequate pricing and the diversion of RLNG towards the domestic segment during winters.
With the recent increase in gas prices and the inclusion of RLNG diversion costs in SNGPL’s price consideration, the payout ratio is expected to improve in the coming years.
| Period | Payout Ratio |
|---|---|
| FY10-FY18 | ~40% |
| Recent | ~25% |
OGDC has announced the first discovery of tight gas at the exploratory well Nur West-1, flowing at a rate of 1.24 MMCFD of gas with 150 psi. The company plans to drill 15 more tight gas wells over the next 24 months, aiming to attract significant investment for exploring untapped reserves.
The government plans to sell its stake in Reko Diq, potentially generating a one-off gain for OGDC. The funds from the sale are expected to be distributed equally among OGDC, PPL, and GHPL, with each company receiving approximately US$333.3 million.
If the foreign exchange gains are recorded in Other Comprehensive Income (OCI), the gain from the sale would be:
If the foreign exchange gains are transferred to the Profit and Loss (P&L) statement, the total gain would be:
The SOTP valuation includes:
The target price offers a 42% upside from the last close, with a 12% dividend yield. OGDC is currently trading at an EV/EBITDA of 1.1x, suggesting strong potential for future growth.
| Metrics | Value |
|---|---|
| Current Price | 132.6 |
| Market Cap (PKR billion) | 570.3 |
| Market Cap (US$ million) | 2,001.1 |
| Free Float Market Cap (US$ million) | 300.2 |
| 30-day Avg. Turnover (million Shares) | 22.1 |
| 30-day Avg. Turnover (PKR million) | 2,207.3 |
| Shares Outstanding (million) | 4,300.9 |
| Free Float (%) | 15% |
| Major Sponsors | Govt. of Pakistan |
| Bloomberg Ticker | OGDC PA |
| Key Financials & Ratios (PKR billion) | FY23 | FY24F | FY25F |
|---|---|---|---|
| Sales – Net | 413.6 | 455.5 | 439.8 |
| Royalty | 48.4 | 52.8 | 51.0 |
| OPEX | 93.6 | 115.8 | 115.1 |
| Gross Profit | 269.7 | 284.4 | 271.2 |
| PBT | 383.8 | 315.6 | 298.9 |
| PAT | 224.6 | 217.5 | 182.3 |
| EPS | 52.2 | 50.6 | 42.4 |
| DPS | 8.6 | 8.4 | 15.3 |
| BVPS | 252 | 294 | 322 |
| P/E | 1.5 | 2.6 | 3.1 |
| P/BV | 0.5 | 0.5 | 0.4 |
| Dividend Yield | 6% | 6% | 12% |
| ROE | 23% | 19% | 14% |
This table combines the financial data and key ratios for OGDC in an organized and comprehensive manner.
The research report indicates a strong potential for OGDC’s growth, supported by strategic project enhancements and improved financial metrics. Investors should consider the long-term benefits and potential risks associated with OGDC stock.
Disclaimer:
The information in this article is based on research by Insight Research. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.
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