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Cnergy PK to acquire 57% stake in Puma Energy

Cnergy PK (formerly Byco) is in its final talks to acquire majority stake of 57 per cent in Puma Energy (previously Admore).

Cnergy has already intimated this matter in its notification to the stock exchange in December 2021, saying that the company is in negotiations with the Puma Energy.

Though Cnergy has not yet announced the outcome of the negotiations, there are media reports that Cnergy is about to close a deal at around Rs4 billion for 57 per cent stake in Puma Energy.

Puma Energy has total outlets of around 542, of which 80 per cent are located in the Northern Areas. Cnergy has total outlets of 432. Thus after acquisition, the company will be the largest Oil Marketing Company (OMC) in the private sector beating Gas and Oil.

After acquisition, the company’s combined market share in retail fuel business will increase to 5 per cent. Currently Puma Energy, despite being the 7th largest OMC by retail outlets, has lower market share of around 1.5 per cent in retail fuels.

This is due to the liquidity constraints faced by the company over the last few years. Puma Energy has the storage capacity of around 10.5k tons (Machike and Daulatpur) of oil products, which is relatively a smaller number but enough to store oil products for 14 to 15 days (lower than 20 days as prescribed by the Oil and Gas Regulatory Authority).

The new group will focus on storage so as to increase the market share in retail business. Currently, Cnergy is operating in both refining and OMC business.

As per September 2021 unconsolidated accounts, the OMC business has the largest share of 68 per cent in the total revenue of Rs34 billion, while the rest is contributed by the refining business.

The OMC business has contributed major share in operating profits; however, the bottom-line remained at break even.

Going forward, the OMC business is likely to improve after the recent hike in the OMC margin by 23 per cent.

Maket keeps positive stance on Pak Suzuki

The market keeps positive stance on the Pak Suzuki Motor Company (PSMC) due to higher-than-anticipated demand for Alto coupled with a declining trend in its price, making it an attractive investment.

With higher-than-anticipated demand for Alto, as it remains unaffected by the mini-budget, coupled with the stock’s recent price correction since the New Year, the positive stance remains on the stock with an estimated upside of over 30 per cent.

Analysts estimate a decline in sales volume for PSMC by 20 per cent to 98,610 units in CY22 before recovering to 106,306 units (up 8 per cent YoY) in CY23.

The gross margins are likely to clock-in at 5.7 per cent for CY22, as the commodity prices are expected to remain elevated during the first half of CY22 coupled with lower sales volume.

Further, the company has paid off all its debts, which have been a drag on the company’s earnings and now holds a sizeable cash balance of Rs31 billion, which is expected to support the company’s bottom-line.

The government has announced multiple tax relief measures in the Federal Budget FY22 with the prime focus on the lower than 1,000cc segment through the federal excise duty (FED) and the sales tax reduction; however, with the recent mini-budget, the government has withdrawn sales tax relief (12.5 per cent as against 17 per cent) for 850cc-1,000cc announced earlier in June 2021.

This excludes vehicles such as Cultus/Wagon R/Picanto leaving Alto as the prime beneficiary in the lower than 1,000cc segment. Hence we have incorporated an upward revision in our sales volume assumption for Alto.

The industry volumes are expected to remain under pressure going into CY22, owing to price increase by the automakers in November 2021, rising interest rates negatively impacting the auto financing demand and imposition of taxes in the mini-budget leading to another round of price hikes by the automakers.

Despite the pressures, analysts believe the market has overplayed the concerns in the auto space.

MCB to purchase  55% TMFB stake

Offering a solid dividend yield with the earnings posting a CY22-24F CAGR of 10.8 per cent: Strong capital base of MCB Bank Limited (MCB) represented by CET-1 capital standing at 15 per cent in the third quarter of CY21 (well above the minimum requirement of 7.5 per cent), positions the bank to maintain strong payout levels.

However, the payout level may fall below the previous five-year average of 86.1 per cent, as the management push to capitalise on lending opportunities, citing higher tax applicability on non-compliance with minimum ADR threshold of 50 per cent recently introduced in the Federal Budget 2022 and implementation of IFRS-9 (one-time charge of, potentially dragging capital ratios of the bank.

The bank still offers a dividend yield of 12.4 per cent in CY22. The earnings are likely to register a CY22-24 CAGR of 10.8 per cent complemented by higher interest-rate-sensitive assets in the portfolio.

To highlight, the MCB’s investment portfolio is bifurcated into 43.4 per cent of T-bills (with the majority of the instrument maturing in January 2022), and 51.6 per cent of PIBs (of which, 55 per cent are floaters).

Additionally, as per the management guidelines, the bank has Rs1.5 billion worth of general provisions yet to be reversed (total Rs4.3 billion reversed since the third quarter of CY20), which together with the recovery pipeline from NIB portfolio should buttress earnings in the near term (the bank due to 52.7 per cent savings account in the deposit mix have historically witnessed higher re-pricing drag on its earnings).

The MCB Bank is in the process of conducting due diligence to acquire a 55 per cent stake in Telenor Microfinance Bank, the operator of the country’s leading digital payments platform, Easypaisa.

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