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Petronet LNG
Valuations rich on recent outperformance
[EXTRACT]
„ Event: significant recent outperformance; limited medium-term upsides
PLNG has significantly outperformed the broader market by 26.5% YTD as expected
catalysts such as gas shortages, strong demand, higher spot cargo sales, and the signing
of more medium-term contracts played out. However, given the Dahej terminal almost
reached its full annualised capacity in Q4 FY11 (faster than we expected), we believe
QoQ sales growth over the medium term, benefits from the gas shortage and a surprise
on sales will be limited as new capacities will come in only after 1.2-3 years.
„ Impact: limited upside until we approach the start of new capacity
After its significant share price outperformance, PLNG’s valuations appear rich at 3.4x
FY12E P/BV (global utility mean is 2.5x) and 15.0x/14.1x FY12/13E PE, given we
think the positives have been priced in and we estimate earnings growth will drop from
53.2% in FY11 to 15.4%/6.9% in FY12/13 (consensus estimates 16.6%/8.9%). While
PLNG should benefit from gas shortages over the long term, we think current
valuations are unattractive until new capacity comes on-stream.
„ Action: downgrade from Buy to Sell, and lower price target to Rs135.00
Although we raise our FY12/13 EPS estimates by 4.7%/5.9% (due to Dahej almost
reaching its full capacity faster than expected), we lower our price target from
Rs150.00 to Rs135.00 as we incorporate a higher cost of capital (risk-free rate, beta)
and forecast lower earnings in the long term (we expect a firmer LNG market and there
could be new competition due to the Reliance-BP deal and many planned terminals).
„ Valuation: pricing in most positives
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��UBS Investment Research
Petronet LNG
Valuations rich on recent outperformance
[EXTRACT]
„ Event: significant recent outperformance; limited medium-term upsides
PLNG has significantly outperformed the broader market by 26.5% YTD as expected
catalysts such as gas shortages, strong demand, higher spot cargo sales, and the signing
of more medium-term contracts played out. However, given the Dahej terminal almost
reached its full annualised capacity in Q4 FY11 (faster than we expected), we believe
QoQ sales growth over the medium term, benefits from the gas shortage and a surprise
on sales will be limited as new capacities will come in only after 1.2-3 years.
„ Impact: limited upside until we approach the start of new capacity
After its significant share price outperformance, PLNG’s valuations appear rich at 3.4x
FY12E P/BV (global utility mean is 2.5x) and 15.0x/14.1x FY12/13E PE, given we
think the positives have been priced in and we estimate earnings growth will drop from
53.2% in FY11 to 15.4%/6.9% in FY12/13 (consensus estimates 16.6%/8.9%). While
PLNG should benefit from gas shortages over the long term, we think current
valuations are unattractive until new capacity comes on-stream.
„ Action: downgrade from Buy to Sell, and lower price target to Rs135.00
Although we raise our FY12/13 EPS estimates by 4.7%/5.9% (due to Dahej almost
reaching its full capacity faster than expected), we lower our price target from
Rs150.00 to Rs135.00 as we incorporate a higher cost of capital (risk-free rate, beta)
and forecast lower earnings in the long term (we expect a firmer LNG market and there
could be new competition due to the Reliance-BP deal and many planned terminals).
„ Valuation: pricing in most positives
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool.
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