FFBL: Event triggers make (or break) value
- Despite potential upside triggers on the horizon, core profitability outlook in the near-term seems to be weak for FFBL. The gas price hike, higher leverage amid rising interest rates scenario and inability to completely pass-on the impact of cost inflation will likely eat into FFBL’s profitability.
- We incorporate better than current DAP margins in our estimates due to expected improvement in 2H and higher dividend income (35% owned FEW-I and FEW-II) for CY19. Nonetheless, the CY19 profits are likely to take a dip, considering leveraged B/S (D/A: 44%) and inability to pass-on gas price hike across product categories.
- Meanwhile, potential triggers in the form of (i) conclusion of FFL transaction and (ii) GIDC settlement are likely to balance the slack in core profitability. The 50.6% owned FFL has been a strain on FFBL’s consolidated profits and cashflows, which could ease up if the FFL sale transaction materializes. Furthermore, a one-time cash inflow could also assist FFBL to deleverage (current D/A ratio: 44%).
- FFBL, being a non-concessionary gas player, also stands to benefit the most in case of GIDC resolution. If the GIDC settlement transpires as per proposal, that is removal of 50% of GIDC on fertilizer feed/fuel followed by a PkR180/bag reduction in Urea prices, it will result in recurring positive earnings impact of PkR0.98/sh for FFBL (60% of standalone CY18 EPS).
- The upcoming result could put a lid on the scrip’s price performance in our view, unless either of the trigger, that is FFL transaction or GIDC settlement materializes. Our TP of PkR36/sh, implies an upside of 13.8% on last close - Neutral.
AKD Research
Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.
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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