BMA Today for September 16, 2019 
 
     MONDAY 16 September 2019 
 
 

 

   

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At a Glance

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Local Market    
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In Focus
E&Ps: Oil prices rise following attack on Aramco

   An escalation in geopolitical tensions following an attack on world largest oil production company, Saudi Aramco, has disrupted ~5% (5.7mn bpd) of world oil production and 18% of OPEC crude supply. The attack on processing facility in Abqaiq and the oil field in Khurais is expected to remain offline as restoration efforts are being conducted. The development has sent the oil price galloping as high as 19% DoD while Brent trades at USD66/bbl, up 10% DoD, at the time of writing this report. Initial estimates have placed partial production restoration expected in a matter of days while entire production rehabilitation could stretch over weeks, according to initial newsflows. Brent oil prices have averaged at USD 62/bbl during FY20TD compared to USD69/bbl in FY19 where the duration of production outage can continue to influence the prices, we believe. Clarity is expected to emerge from Saudi Aramco’s update expected within 48 hours of the incident. Our base case oil price assumption for FY20/21 stands at USD 63/62/bbl, unchanged amid current developments and uncertainty surrounding rehabilitation of the affected field and facility. However, given the current scenario, with every USD 5/bbl increase in oil prices POL remains the most sensitive with 10% annualized increase in earnings from our base case and by 7% for OGDC and PPL. In terms of macros, a USD5/bbl movement in oil price may lead to an annualized impact of USD0.9‐1.1bn on Pakistan’s oil import bill. On the inflationary front, every USD5/bbl hike in oil price increases headline inflation by 27bps (old base). We maintain an overweight stance on the E&P sector with a Buy rating that currently trades at a forward P/E of 4.3x. OGDC and PPL are our preferred picks.

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Media Watch

Economy: ADB to give USD350m for energy sector reforms / Dawn
Sectoral: Islamic banks market share rises to 14.4pc / Dawn
Sectoral: Cement exports jump 12.66pc / Dawn
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DISCLAIMER
This memorandum is produced by BMA Capital Management Limited and is only for the use of their clients. While the information contained herein is from sources believed reliable, we do not represent that it is accurate or complete and should not be relied upon as such. Opinions expressed may be revised at any time. This memorandum is for information only and is not an offer to buy or sell, or solicitation of any offer to buy or sell the securities mentioned.