Is this the time to buy government-owned oil companies?

Published: November 21, 2017 19:07:16 | Updated: November 21, 2017 20:07:57


The fuel and power sector was flat in Dhaka Stock exchange in the last six months, failing to generate any total return to the shareholders.

Price performance of the three government-owned oil companies, Jamuana Oil Company Ltd, Meghna Petroleum Ltd and Padma Oil Company Ltd, was particularly disappointing.

Total return of JAMUNAOIL, MPETROLEUM and PADMAOIL were (-2.7 per cent), (-0.9 per cent) and (-2.2 per cent) respectively. These negative returns are particularly alarming in the current bull market.

All of these three companies declared their quarterly earnings last week.

JAMUNAOIL posted an EPS of Tk. 5.22 for July-September, 2017 as against Tk. 6.43 for July-September, 2016, registering 18.8 per cent decline in Net Profit.

Even though the company’s net earnings from Petroleum Products and net non-operating earnings increased, the company’s net profit declined because of the 61 per cent increase in operating expense. The increase in operating expense was primarily driven by an increase in Salaries Accounts.

While JAMUNAOIL posted decline in profitability, both MPETROLEUM and PADMAOIL posted an increase in profitability. MPETROLEUM declared an EPS of Tk. 6.03 for July-September, 2017 as against Tk. 5.04 for July-September, 2016, registering 19.6 per cent growth in EPS. And PADMAOIL declared an EPS was Tk. 6.32 for July-September, 2017 as against Tk. 5.80 for July-September, 2016, registering 9.0 per cent EPS growth.

Furthermore, all of the three companies declared a 110 per cent cash dividend for the year ended on June 2017.

Record date of JAMUNAOIL is on 12 December while the record dates of MPETROLEUM and PADMAOIL is on 30 November and 18 December respectively.

However, despite the cash dividend and growth in EPS, share price of any one of those companies did not increase due to a lack of interest from the buyers.

One important thing is the impact of interest rate movement on these three companies.

These companies primarily work as the middleman for the oil products and earn commissions on the volume of oil.

Therefore, these three companies have enormous cash balances, and significant portions of their earnings are derived from the cash balances.

 

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