Karachi: Mari Petroleum becomes the top pick stock amongst research analyst as they anticipate a double-digit return on investment in post dividend distribution permission by the government of Pakistan.
“Mari is a top pick in the sector,” Mustafa Mustansir, head of research at Taurus Securities, said in a phone interview from Karachi today. “This company is offering the highest rate of returns going forward.” The share price is still below its fair value according to our estimates. The development will prove positive for the overall privatization process and investors’ confidence, he added. Mari Petroleum was among the highest gainer today. Its share price rose 115.04 rupees to close at 1,649.02, according to PSX data.
On Wednesday, the federal government allowed Mari Petroleum Company Limited to fully distribute its dividend among shareholders – three years ahead of schedule – aimed at selling its remaining 18.4% stake to either existing shareholders or through the stock exchange.
The government has been trying to divest its holding for a long time; however cap on company’s dividend distribution has been resulting in the mispricing of its fair value both at exchange and privatization process, Shanker Talrejaa, research analyst at Topline Securities, said. We have a “Buy” rating on MARI with Dec-2021 Target price of Rs1,871, suggesting a total return of 22%. In our strategy report for 2021, MARI was also our top pick, he added.
According to the Ministry of Finance, the Economic Coordination Committee (ECC) agreed that the dividend distribution cap might be removed to ensure that the divestment transaction generated optimum sale proceeds for the government.
It added that the Petroleum Division had moved a summary for the removal of dividend distribution cap on Mari Petroleum under the gas pricing agreement, as the company was being considered for privatization.
The committee also decided that Mari Petroleum would ensure dividend distribution in accordance with the provisions of Companies Act 2017 and Companies (Distribution of Dividends) Regulations 2017.
The government has 18.39% shares in Mari Petroleum, which it wants to offload to raise money for budget deficit financing. The Fauji Foundation controls 40% shareholding, and Oil and Gas Development Company (OGDC) has 20% shares.
Under the shareholders’ agreement, both the companies have the “first right of refusal”. Both of these companies had exercised the first right of refusal in 2017 when the then government offered to sell the shares. It is not clear whether the 2017 first right of refusal is still relevant.
In 2017, the Cabinet Committee on Privatization approved the transfer price for selling 18.3% stake at a 5% discount to the closing stock price on the day before which the transfer notice was served to the joint-venture partners. At that time, the stock stood at Rs1,427, and the transfer price came in at Rs1,355 per share.
According to the original decision, till 2024, the company was barred from paying dividend beyond a certain threshold, which had built sufficient capital for future investment. The dividend was capped after the government paid relatively higher tariffs to the company on its exploration activities.