Hascol Petroleum Limited (HASCOL) has posted outstanding financial results for yearend CY14. In financials announced on the 25th of Mar’15, the firm has posted strong NPAT growth of 63% YoY, recorded at PKR 640mn (EPS: PKR 7.84) in CY14 against PKR 392mn (EPS: PKR 5.97) in the previous year. Management has decided to reward investors with final reward of 11% bonus along with results. This is in addition to cash dividend of PKR 3.2/share already paid out.

Gross margins down on price fluctuation, operating margins up: Downside to price drop, despite benefit of better demand, is fluctuations and price differentials, forced degradation of gross margins. Gross margin for the year are recorded at 2.4%, down by 33bps YoY against margin of 2.7% in the previous year. Despite slight degradation, gross profits increased notably by 50% YoY to reach PKR 2.04bn against PKR 1.36bn in the previous year.

Company Outlook: Observing impact of drastic price reduction in the final quarter, we expect the firm to experience some negative growth; however, as oil prices are again moving upwards, re-pricing of POL products and growing volumes may help in recovery. Growing financial obligations are an added burden. Despite heavy burden created by circular debt across the board, the scrip still offers an upside potential of 47% to hit its target value of PKR135 owing to stable P/E(x) of 7.3x and reasonable D/Y% at 7%. Buy.