Topline Sets PPL Target Price for 2026

Staff Report:

Topline has reiterate its ‘BUY’ stance on Pakistan Petroleum Limited (PPL) with a June-2026 Target Price (TP) of Rs222/share, offering a potential total upside of 41%.

 Despite 24% and 19% decline in earnings during FY25 and FY26, respectively, we maintain our BUY stance on PPL as stock has already lost 20% of its peak market cap inspite of Reko Diq feasibility that will add 28% to the valuation. At our TP of Rs222, PPL is trading at implied FY26 and FY27 PE of 8.7x and 7.5x compared historic good time (when recoveries were above 90%) PE of 8.6x.

 Earnings are expected to decline 19% in FY26 due to decline in oil and gas production by 8% and 14% respectively compared to FY25. We have assumed oil prices at US$65/barrel for FY26 and onwards with an average US$ parity of Rs294 for FY26.

 The upside to our earnings and valuation estimates can emanate from (1) One time resolution of gas sector circular debt in line with resolution of power sector circular debt under the IMF program, (2) further improvement in regular cashflows after gas price hike and  (3) increase in average oil prices in FY26 from our assumed level of US$65/barrel. The recent escalation of war in middle east have significantly increased oil prices to over US$75/barrel (Brent).

While downside risk to our valuation and earnings are likely from (1) oil prices going below US$65/barrel, (2) increase in circular debt as witnessed in 3QFY25 and 4QFY25, as per our channel checks and (3) further decline in oil and gas production due to RLNG surplus. (Our base case production estimates from major fields are shown in slide 6).

 Likely resolution of gas sector circular debt: The recently released IMF report has highlighted to Govt’s commitment to clear the backlog of the gas sector circular debt. Although, Government is gradually clearing the old backlog by ensuring higher gas tariff than cost, however, surplus of RLNG is weighing on Govt. estimates and contrary to plan, circular debt has increase in 3Q and 4QFY25. Government has also formed a committee to come up with plans to address this circular debt issue. If Govt. issue/announce a plan to clear the major portion of the gas sector circular debt. This will ensure, receipt of blocked cash of E&Ps and will subsequently companies them to invest in their businesses/or to increase payout to their shareholders.Topline Revises UBL Target Price Up

Production to decline in FY25 and FY26: Amidst surplus RLNG availability and gradual shift from gas captives to other alternates like grid and FO, the Sui companies have forcedly curtailed their procurement of gas from local E&P companies. As a result, the production of oil and gas of PPL is expected to decline by 18% and 21% respectively in FY25 and will further lower by 8% and 14% respectively in FY26.

 We have assumed gas production from Sui in FY25 and FY26 at 236 and 197mmcfd, respectively vs. FY22 level of 334mmcfd. The current flows as per the week of Jun 08, 2025 are 172 mmcfd. The field wise production flows estimates are given in slide 6,” Topline said.

 Reko Diq adding 28% to value: As per the feasibility study of Reko Diq published in Feb 2025, the total free cash flows from the field in 37 year will be US$70bn with NPV coming in at US$13bn using discount rate of 8%. We have increased the discount rate to 18% given the case of Pakistan, that translates in PPL’s PV of its proportionate cashflows (in Rs terms) to Rs62/share, constituting 28% in target price of Rs222/share of the company.

 EPS expected to clock in at Rs32/26/30 in FY25/26/27: Based on the production flows mentioned above and oil price assumption of US$65/bbl and above, we expect company to post EPS of Rs32, Rs26, Rs30 in FY25, FY26 and FY27, respectively. Similarly, dividend expectations are Rs8, Rs9, and Rs10.5, for the said years respectively.

 PPL fair value arriving at Rs222/share using blended methodology: We have valued PPL using blended valuation methodology by giving equal weight to reserve based discounted methodology and PE ratio. Based on reserves based discounted methodology, the target price arrives at Rs224 per share, while PE based valuation arrives at Rs221 per share using forward PE of 8.6x at FY26E EPS of Rs25.7. This translates into fair value of Rs222 per share, with a total return of 41%.

 Key risks/upsides: Key risks/upsides to our earnings estimates and valuation would be (1) higher/lower than anticipated production curtailment by sui cos amidst surplus RLNG, (2) further decline/increase in oil prices from our expected levels of US$65/bbl, (3) delay or non-materialization of gas sector circular debt resolution plan, and (4) higher than expected exploration and development cost.