FFC: Fundamental weakness calls for earnings revision
Post release of detailed accounts for 1HCY17, we revisit our investment case for FFC on the basis of: 1) continuous decline in primary margins (GMs were down 3pptsYoY to 29.7% in 1HCY17) on account of lower retention prices, 2) subdued urea demand alongwith declining market share, 3) weak contribution from portfolio companies and 4) rising distribution cost. In this regard, we revise down our GM assumption by 2.9%/3.0ppts to 28.9%/29.8% alongwith downward revision in other income by 25%/27% for CY17F/CY18F. In tandem, incorporation of the aforementioned factors have led us to lower our CY17/CY18 earnings estimates by 26%/25% to PkR6.97/7.66. Consequently, our TP goes down by 19% to PkR96.9/sh (previously at PkR120.0/sh). FFC has lost 22%CYTD and is currently trading at a forward PE(x) of 10.65x. While fundamental pressures are likely to remain, we base our case on the dividend yield on offer (CY18F: 8.5%). Accumulate!
Fauji Fertilizer is engaged in the manufacturing, purchasing and marketing of fertilizers including the investment in other fertilizer manufacturing operations. As of Dec 31 2004, Co. had a design capacity of 2,455,000 tonnes for urea production and 445,000 tonnes for DAP production.
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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