ASTL: Getting off high horse
- Deep into contraction cycle as the company struggles to pass-on input cost pressures, we revisit our investment case for ASTL, downward revising our earnings forecasts by 27% (on avg.) over the investment horizon (FY19-24F).
- Consequently, our revised Dec’19 TP comes to PkR58/sh (previously PkR80/sh), accommodating for the company’s inability to maintain pricing discipline and weak demand cycle.
- We expect the macro backdrop to remain challenging in CY19 for long steel manufacturers, with distinct regional factors at play, dictating market dynamics. Ongoing investigations against various construction projects and housing schemes will keep demand depressed in the North, while South may hold and get some respite from the favorable regulatory backdrop.
- ASTL has lost out a quarter of its value since CYTD, half of it since FYTD, and two third from its peak in May’17, where several factors weighed on the stock price including i) poor financial performance, ii) failure to deliver on expectations, and iii) overall market sentiment.
- With Tobin’s Q* below 1 (see chart below) and P/B multiple of 0.85 (x) (vs. historic trading avg. P/B of 2.04(x)), ASTL’s current price largely reflects the downside risks, in our view. While highlighting the weak earnings outlook in the near term, we advocate for a long term investment horizon and call for staggered buying.
AKD Research
Amreli Steels Limited is a Pakistan-based steel manufacturing company. The Company is engaged in the manufacture and sale of steel bars and billets. The Company offers a range of steel bars for all construction needs.
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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