Perusahaan Gas Negara

1. Company Profile
Perusahaan Gas Negara, Tbk.

An overview
PT Perusahaan Gas Negara (Persero) Tbk PGN,known as “PGAS” on Indonesia Stock Exchange is a State-Owned Enterprise established in 1859 as FirmL.I. Enthoven & Co. In 1950, the Dutch Government changed the name to NV Overzeese Gas en Electriciteit Maatschappij (NV OGEM). Following the Independence of the Republic of Indonesia, the government took over the ownership of the Company and changed the name to Penguasa Perusahaan Peralihan Listrik dan Gas (P3LG). The status of the Company then changed into BPU PLN in 1961. On May 13, 1965, based on Government Regulation No. 19/1965, the Company was stated as state owned enterprise and known as Perusahaan Gas Negara (PGN). Then, based on Government Regulation No. 27 of 1984, the Company legal status was changed from Perusahaan Negara (PN) to Perusahaan Umum (“Perum”).
Vision of this company is to become world Class Company in natural gas utilization. And the mission to enhance the value of organization for stakeholders by:
• strengthening the core business in natural gas transportation and trading;
• developing gas manufacturing businesses;
• developing operational, maintenance and engineering businesses associated with oil and gas industries;
• Profiting from the Company’s resources and assets by developing other businesses.
Strategic Business Unit
SBU distribution is a unit which deals directly the operation of natural gas distribution activities. SBU establishment aims to improve the network management and facility effectiveness and efficiency in SBU area, which can increase service quality towards customer satisfaction as well as speeding up penetration and market expansion. Until now Perusahaan Gas Negara has 3 SBU:
• SBU Distribution Area I, West Java. The total network length is 2,169 Km
• SBU Distribution Area II, East Java. Total network length in SBU II is 700 Km
• SBU Distribution Area III, North Sumatera. Total network length of 611 Km.
PGN’s business is a stable utility business with US dollar earnings, and consists two core businesses: distribution and transmission. For distribution, PGN signs long-term supply agreements with upstream operators, which give the company scheduled and reliable gas volumes, and fixed gas prices. While for transmission, PGN serve a company or a industry to set kind a pipeline from and to a certain places.
Natural gas is made up of hydrocarbon gases, primarily methane (C1). It is usually found deep below the earth's surface, often with deposits of oil, and is removed by wells that are drilled to access the petroleum deposits. After it reaches the surface, the gas is separated from any oil or water that may have been present in the petroleum deposit. It is then processed to remove impurities, other gases such as propane and butane, and any remaining water or water vapor. Natural gas differ from LPG (Liquified Petroleum Gas / Elpiji) in its component, where LPG primarily made up from Propane (C3). LPG is distributed by vessel, while natural gas by pipeline.


2. Theory
BCG matrix

1. STAR (high growth, high market share)
Star are using large amount of cash. Stars are leaders in the business. Therefore they should also generate large amounts of cash. Stars are frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold your market share in stars, because the rewards will be cash cows it market share is kept.
2. CASH COWS (low growth, high market share)
Profits and cash geeration should be high. Because, of the low growth, investments which are needed should be low. Cash cows are often the stars of yesterday and they are foundation of a company.


3. DOGS (low growth, low market share)
Avoid and minimize the number of Dogs Company. Watch out for extensive “rescue plans”. Dogs must deliver cash, otherwise they must be liquidated.
4. QUESTION MARKS (high growth, low market share)
Question marks have the worst cash characteristic of all, because they have high cash demands and generate low returns, because of their low market share.

3. Analysis of company stock risk and market risk
A. Average Analysis
The definition of average is a single value that is meant to typify a list of values. If all the numbers in the list are the same, then this number should be used. If the numbers are not the same, an easy way to get a representative value from a list is to randomly pick any number from the list. In the latter case, the average is calculated by combining the values from the set in a specific way and computing a single number as being the average of the set. In my own word and understanding average is a central tendency from a specific numbers.
Ri / PGN Rm / IHSG
AVERAGE 0.000482 0.0017818

From the data taken from January 2,2010 till October 30, 2010 of Stock and market return from Perusahaa Gas Negara and also Indonesia Stock Exchange, we can see on the table. For the PGN’s average is 0.000482 while IDX’s average is 0.001718. For the PGN, 0.000482 defines as the return on average since January until October. The company got that number of amount everyday. While, for IDX 0.001718 means the investor will get 0.001718 on average from the return, calculated from January till October 2010. So that, we can conclude stock return of PGN is not as much as market return. And it can be caused by the performance of the company in that specific time.
B. Standard Deviation Analysis
According to wikipedia, standard deviation defines as a widely used measurement of variability or diversity used in statistics and probability theory. It shows how much variation or 'dispersion' there is from the 'average' (mean, or expected/budgeted value). A low standard deviation indicates that the data points tend to be very close to the mean, whereas high standard deviation indicates that the data is spread out over a large range of values. In risk management standard deviation can be used as a measures the risk of a stock or a stock portfolio.
Ri/PGN Rm/IHSG
STANDARD DEVIATION 0.019118
0.0129022

As we can see in table, the standard deviation of PGN is 0.001918, which mean bigger than the IDX. The basic idea is that the standard deviation is a measure of volatility: the more a stock's returns vary from the stock's average return, the more volatile the stock. So, we can conclude that PGN’s stock is more volatile which mean has a bigger risk than IDX. Once again, the performance of the company may cause this situation. Also, the popularity of PGAS in Indonesia stock exchange causes this condition. Because, usually the investor prefers a company that work in a financial sector, so that they ca gain more profit rather than this kind of company.
C. BETA Analysis
In finance, the Beta (β) of a stock or portfolio is a number describing the relation of its returns with that of the financial market as a whole. An asset with a Beta of zero means that its returns change independently of changes in the market's returns. A positive beta means that the asset's returns generally follow the market's returns, in the sense that they both tend to be above their respective averages together, or both tend to be below their respective averages together. A negative beta means that the asset's returns generally move opposite the market's returns: one will tend to be above its average when the other is below its average.

Beta (β) = 0.473296

From the explanation above we can conclude that beta has close relation between stock and market return. The value of beta which is 0.473296 means every 1 rupiah of market stock raise, the stock price also raise for 0.473296 rupiah. That number still consider as good condition because the value is positive.

4. Analysis of company portfolio using BCG matrix
The Boston matrix is a management tool developed to assist in portfolio planning. It has two controlling aspects; market share and the rate of the growth. The BCG matrix is the most well-known portfolio management tool. It is based on product life cycle theory. The point of this theory is : if a product has a bigger market share, or if the product’s market grows faster, it is better for the company.
In Perusahaan Gas Negara , we know they have 3 Strategic Business Unit (SBU). Those 3 SBU located in all over java and north Sumatra. SBU Distribution Area I, West Java. The total network length is 2,169 Km, SBU Distribution Area II, East Java. Total network length in SBU II is 700 Km, SBU Distribution Area III, and North Sumatera. Total network length of 611 Km. not only became the distributor PGN also play as transmission agency.
If we analyze the SBU of PGN using BCG matrix which is using to measure whether the product / SBU is good or not, we can located the SBU on Cash cows position. Because, this SBU considered as high market share in a slow-growing industry. These units typically generate cash in excess of the amount of cash needed to maintain the business, in practice PGN allocate some money for maintaining their pipelines in their SBU area. The factors why PGN’s SBU is considered as cash cows in BCG matrix are:
1. PGN considered as an industry with low market growth but high market share.
2. PGN relatively maintain rather than gain.
3. PGN is not the leader of this business. But they still needed by their customer.
Actually, role as a transmission agency also makes profit to the company. But, because it is only a contractual so the profit would not as high as the distribution ones.

5. Conclusion
Average and standard deviation of stock return, market return and beta of company stock let us to know about the performance of the company. In other words, it can help us to consider whether the company is good at Indonesia stock exchange or not. From the data after we calculated, we can determine that the company still on profitable side, even not as much as if we invest in IHSG stock. It showed by the standard deviation and average that still below the IHSG’s. For the PGN’s average is 0.000482 while IDX’s average is 0.001718. The standard deviation of PGN is 0.001918, for IHSG is 0.0129022. Even though, the company shows a not so good performance compares with the market the company still promising and recommended , it prove with a fact that Perusahaan Gas Negara include to LQ45 which is consist of most 45 companies that considered as good.
In accordance with the explanation and definition of BCG matrix, Perusahaan Gas Negara’s SBU (Strategic Business Unit) is considered as Cash Cows. They relatively maintain than gain. And they using a lot of money in term of maintain, such as maintain their pipelines. This is also because the PGN included as low growth industry with high market share.


6. References
PT Perusahaan Gas Negara (Persero) Tbk. “an overview of PGN”.
Taken from www.pgn.co.id. On the date 22 September 2010.
Merna, Tony; Faisal F. AL-Thani. 2007. “Corporate Risk Management”.
Course Reading Package-Risk Management