June 15, 2023 (MLN): Shell Plc's decision to exit the Pakistan market sparked concerns within the South Asian nation, however, this turn of events could potentially prove to be a blessing in disguise for Shell Pakistan (PSX: SHEL).
This exit may bring down costs by around Rs3-4 billion per annum and may improve EPS by Rs10, as multinationals pay a technical fee to their foreign franchise and allocate higher costs for environmental protection, as highlighted by Sherman Securities report.
The oil giant’s intent to sell its shareholding in SHEL has remained the hot talk of Pakistani financial markets since yesterday’s news, notably, Shell Plc holds a total of 77% stake in SHEL.
Since the news, SHEL’s stock has surged by the daily limit of 7.5% for the second consecutive day, from the open price of Rs82.95 on June 14 to the current price of Rs95.86 per share.
Local investors felt excited as one of the largest MNCs based on a turnover of $1.5bn due to its global strategy is selling assets in Pakistan at a time when share price is at lowest levels due to economic concerns, the report added.
According to the rules, the benefit of the deal will also translate to minority shareholders as potential buy will acquire 50% of the free float from minority shareholders as well, if the deal is materialized.
Shell Pakistan is the fifth largest Oil Marketing Company (OMC) with more than 641 retail outlets while the company enjoys 150k tons of oil storage, including main installations and upcountry depots, the report highlighted.
Moreover, Shell Pakistan also owns a 26% stake in Pak Arab Pipeline Company which transport white oil fuels to the upcountry and holds significance once government deregulates the oil pricing mechanism.
If the negotiated price is more than the current traded price, shareholders will benefit which has been the case in past transactions, Memoona Tanveer, head of corporate and high net worth individuals at Dawood Equities Ltd. stated as reported by Bloomberg.
SHEL Valuation close to Rs40bn ($140m)
According to the reports’ valuation, SHEL’s asset value is close to Rs40bn ($140m) or Rs186/share.
Unlike other OMCs, Shell Pakistan is unleveraged, thanks to cash-rich lube and retail business.
Moreover, new players may bring efficiency to local business Interestingly, SHEL’s annualized net revenue is close to Rs430bn ($1.5bn) while gross margin, excluding inventory gains/losses and depreciation), is close to 6.5% which is one of the highest amongst listed OMCs, thanks to lube business which contributes higher share in gross profit.
Interestingly, OMCs enjoy a gross margin of 2.2% or Rs6 per liter in retail business which is expected to rise further going forward since the formula is linked with CPI inflation, it further added.
SHEL vs KSE-100 weekly time-frame chart:
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Posted on: 2023-06-15T14:45:27+05:00
