Please refer to the last page for Analyst Certification and other important disclosures.

Government to offload 70mn shares: Government of Pakistan has decided to offer 70mn shares

of PPL under the privatization program through a SPO. Of the total 70mn shares, 63mn shares

will be offered through book building while the remaining 7mn shares will be offered by a public

offer. Book building will be completed on June 26-27, 2014.

Strike price would not be at much discount: PPL has corrected by 8.3% since the appointment

of financial advisors for privatization on expectations of a strike price at a discount. However, we

believe that strike price would not be at much discount from current levels.

SPO to lure investor interest: Liquidity in PPL has recently dried up as a majority of the available

float has been taken up by a few investors. This SPO would increase PPL’s weight in KSE-100

index by 0.8pp to 6.6% and shall increase liquidity and is expected to attract investor interest.

Strong operating history and outlook: PPL exploration program has been more fruitful as

compared to industry over the years. The company is pursuing aggressive exploration program

which may initially hurt earnings due to potential dry wells. Nevertheless, potential successes

will be the key trigger for the stock during the next two years.

Investment case remains strong: At current levels, PPL trades at FY15E PER of 7.4x and offers a

potential upside of 9% to our Dec-14 PT coupled with FY15 dividend yield of 5%. Adjusted for

final payout of FY14 (PKR5/sh), the stock offers total return of 17%. BUY

Government to offload 70mn shares

Government of Pakistan has decided to offer 70mn shares of PPL under the privatization

program through a SPO. Of the total 70mn shares, 63mn shares will be offered through book

building to institutional as well as high net worth investors while remaining 7mn shares will be

offered to the general public at a strike price determined through book building. Book building

will be completed on June 26-27, 2014.

Strike price would not be at much discount

PPL’s stock price has corrected by 8.3% since the appointment of financial advisors for

privatization on anticipation of SPO price at a discount to the current market price. This is

consistent with the recent offer of UBL where offer price was at a 7% discount to last closing.

However, we believe that the floor price for PPL would not be at a significant discount from

current levels. Taking cues from the recently concluded UBL’s SPO where the price was at a 5%

premium to six month average price (PKR150/sh). PPL currently trades 4% lower relative to its

six months average price (PKR220/sh).

SPO to lure investor interest

Liquidity in PPL’s stock price has recently dried up as a majority of the available float has been

taken up by a few investors. PPL’s proportion in KSE-100 index average daily volumes has

reduced from 9% (26mn) in 2005 to 1% (1.9mn) currently (last 12 month average). PPL’s weight

in KSE-100 index is currently 5.8% which would likely increase by 0.8pp to 6.6% after this

transaction. Completion of the planned SPO would increase the free float of PPL by 17% and

shall increase liquidity and is likely to attract investor interest.

Oil & Gas Overweight

PPL PA Price Target: PKR230/Share

Closing Price: PKR211.6/Share

BUY

Stock Statistics

12m Price Range (PKR) 245.6 – 165.9

Market Cap (PKR mn)

417,175.6

Outstanding Shares (mn)

1,971.7

Avg. Daily Volume mn (6m) 1.2

1Yr – Relative Performance

Source: Elixir Research

PPL FY14E FY15E FY16E

EPS (PKR) 25.4 28.4 30.7

DPS (PKR) 10.0 11.0 12.0

PER (x) 8.3 7.4 6.9

Div. Yield 4.7% 5.2% 5.7%

EV/EBITDA (x) 4.5 3.7 3.1

P/BV (x) 2.5 2.1 1.7

ROE 33% 30% 27%

Source: Company Accounts, Elixir Research

Sateesh Balani AC

sbalani@elixirsec.com (+92-21) 3569 4679

The Bell 25 June, 2014 Pakistan Research

PPL: SPO to lure investor interest

70

90

110

130

150

170

Jun

-13

Aug

-13

Oct

-13

Dec

-13

Feb

-14

Apr

-14

Jun

-14

(%) PPL KSE-100 INDEX

2

Change in PPL’s weight in KSE-100 index after SPO

Free float (mn shares) Free float Market Cap (PKRmn) Weight in KSE-100 index

Current 410 86,815 5.8%

Change from SPO 70 14,820 0.8%

Post transaction 480 101,635 6.6%

Source: KSE, Elixir Research

Strong operating history and outlook

PPL exploration program has been more fruitful as compared to industry over the years. The

company’s success ratio is 1:2.7 as compared to country’s overall exploration success ratio 1:3.2.

PPL is pursuing aggressive exploration program as reflected by its participation in auction and

increased exploration costs. The company, in the last auction round, acquired 10 exploration

blocks taking the total number of concessions to 47. Exploration expenditure has also increased

at a five year CAGR of 23% during FY08-13. The company has already exceeded its FY14

exploration target in 11MFY14 and spud seven exploratory wells against five planned wells.

Aggressive exploration may initially hurt earnings due to potential dry wells. Nevertheless,

potential successes shall play an important role in ramping up PPL’s volume growth profile and

will be the key trigger for the stock during the next two years.

Investment case remains strong

At current levels, PPL trades at a FY15 PER of 7.4x and offers potential upside of 9% to our Dec-

14 PT coupled with a FY15 dividend yield of 5%. Adjusted for final payout of FY14 (PKR5/sh), the

stock offers a total return of 17%. BUY

3

Analyst Certification

The research analyst(s) denoted AC on the cover of this report, primarily involved in the preparation of this report, certifies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject companies/securities and (2) no part of his/her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

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