PetroChina, the public division of China’s state giant CNPC, has quietly become the third-largest oil and gas company globally, with a market cap exceeding Chevron’s since the start of this year; quietly, because it tends to stay out of most investors’ radars, for a number of reasons. Yet now some analysts believe it is the best time to start buying the Chinese company.
The average market cap of PetroChina since the start of the year, according to Bloomberg, has come in at US$232 billion, versus US$230 billion for Chevron. Its Hong Kong-listed shares trade at a 33-percent discount to the company’s book value. This compares with a 68-premium to book value for Exxon’s stock and a 1.34x premium to book value for Shell.
All this makes PetroChina look like a steal, especially against the background of its international growth and plans to streamline its operations. Most recently, PetroChina signed up for Libyan crude oil shipments, joining Shell and BP in the troubled North African country. Also, PetroChina recently bought a 30-percent stake in Brazilian oil product distributor TT Work.
At the same time, the company is preparing to spin off its pipelines business, which analysts polled by Bloomberg see as something that will boost its financial performance going forward. PetroChina has a network of some 80,000 miles of pipelines and the plan, truth be told, is not exactly its own. The Chinese National Development and Reform Commission has stated that pipelines should be separate from the state oil and gas companies’ core business and this sparked rumors that Beijing was going to force state majors to cut off their pipeline operations. Related: Which Oil Major Has The Best Investment Strategy?
In terms of financial performance, PetroChina has benefited like everyone else from the oil price jump last year. In fact, it may have benefited a lot more than some, with analysts expecting the company to report Q4 2017 earnings per share of US$2.27 later this month, which would be a more than 170-percent quarterly increase.
Yet investors continue to be wary—analysts too. Unlike the general world population, investors have a longer memory and still clearly remember the corruption scandal in PetroChina that led to prison sentences for a number of senior executives, including the company’s then-chairman.
Investors also remember the collapse of PetroChina’s Shanghai-listed stock 11 years ago, and the fact that since then, the company’s shares have been more or less consistently falling. Over the period 2007-2017 a total US$800 billion of market value was wiped out, according to Bloomberg figures.
This wasn’t just a result of the corruption scandal, of course. It was also a result of Beijing’s shift away from heavy industries and towards a more service-oriented economic model, combined with a 44-percent drop in oil prices over the period, and, not least, the government’s ambitious EV adoption plan.
So, is PetroChina a bargain? It may well be, despite all the challenges. After all, these challenges are not affecting one single company. They are affecting the whole oil industry. From this perspective, PetroChina could indeed be a steal.
By Irina Slav for Oilprice.com
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