Govt. oil price cut is a white elephant/its a joke:Monday LIOC could drop due to this news. However, many panic sellers're now out of the market.
From Global perspective:Oil price slashed from 107.10 (06/2014) to 65.6 (Last closed price), which is a significant
drop of around 40%.
Thus OPEC has officially decided to not to cut the oil production, saying market will determine the price itself.
The main factors beyond this drops;
- US now moving to alternative/renewable energies, and their consumption is reducing year by year.
- Slow down economy of China, and recession of EU still continued. Hence, the demand has reduced.
- US want to plunged Russian economy, by this price drop, as Russia is the 2nd largest oil exporter in the world.
Hence, there's a good possibility of global oil price drop moreover in next year.
Local Perspective:This the financial outlook of CPC.
The treasury is expecting a loss. But, CPC saying they recorded LKR 3 Bn profit for this year. However, their loss accumulation is still there and plus a huge debt for State Banks amonut exceeding LKR 400 Bn.
Comparing with the the debts for banks LKR 400Bn, this year profit LKR 3bn is a piece of joke/shit. Obviously, its not even marginally sufficient. Hence, its a problem that Govt. how long they'll continue this price reduction
Price Drop:Due to election, Govt reduced the price, unless we cannot even think of it, comparing above CPC facts.
Now Govt, reduced oil prices two times recently.
95 Petrol: 170 -5 -7= 158 (7% reduction)
Diesel (LSD): 145 -5 -7= 133 (8% reduction)
But world oil prices drop around 40%. But still less than 7%-9% reduced by Govt.CPC forwards their contracts: CPC forward their contracts exceeding another year with Singapore company, based on fixed average monthly price in Singapore market plus a considerable premium. So, its obvious that CPC/ Govt. would not take the direct benefit of price reduction. (http://www.sundaytimes.lk/141026/news/oil-prices-falling-but-cpc-signs-long-term-deal-124699.html)
LIOC perspective:Revenue growth YoY - 11%
Annullazied profit this year- LKR 4.7bn
NAV- LKR 42/-
EPS (annualized)- LKR 8.8/-
P/E - 6.3
Valuation - LKR 91.2/-
Conclusion:- Big potential in global oil price drop continuation in next year.
- Global oil prices slashed 40% but, Govt, reduced oil retail prices by 7%-9%.
- CPC wouldn't take the direct benefit of oil price drop due to forward of contracts.
- CPC having LKR 400bn debt. This year profit Lkr 3bn. Price reduction is not afforadable for CPC. Hence, expecting oil price will increase again after the election.
- Solid earnings, revenue and profit growth of LIOC.
Collect LIOC at key support levels...
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