PPL – Govt. intending to divest 2.5% of their holding – Alfalah Securities Limited

Karachi: The Privatization Commission has announced that 23m (2.5% of the 70.66% holding of Govt. of Pakistan in the company) would beplaced/sold to local and international investors after the book closure of Pakistan Petroleum Limited (PPL) ends i.e. after March 8, 2012.

According to Alfalah Securities Limited expects the placement to happen in the 3rd week of March. This would be the first major equity placement after the current government has taken over; creating an impression that the govt. has finally realized that capital markets can really help major Fx inflows into the country. The timing of placement appears good as the three major global brokerage houses are conducting international road-shows on Pakistan in the month of March.

The stock has underperformed the KSE-100 index by 2.6% since Nov 1, 2011 in lieu of potential placement since November 1, 2011. Alfalah Securities Limited expects the stock to be sold at a slight discount to the current market price. Alfalah Securities Limited recommends a BUY on the stock as the stock trades at 5.7x FY2012 earnings at PKR 176.25, yielding 9% and trading at a 35% discount to Alfalah Securities Limited’s fair value of PKR 237. However, investors can think of buying the stock through placement or when the placement period approaches so as to absorb any price shocks due to an increase in shares float. At current price, the Govt. is expected to fetch USD 45m from the secondary placement. Furthermore, the Govt. is expected to bring more issues subsequently.