LUCK: Near term gloom obscuring fundamentals, (AKD Daily, Sep 19, 2019)
- We update our estimates post incorporating detailed accounts for FY19 where the stretched working capital cycle, packaging cost increase of 33%YoY and capital expenditure of PkR19.7bn stand out (against our assumption of PkR13-14bn).
- Details of operations in Iraq and Congo reveal a disappointing picture where net margins of Congo/Iraq declined to –10/14% against 4/23% in FY18 as finance costs in Congo weighed heavy, while one-off charges in Iraq 4QFY19 dragged profitability.
- The company is currently trading at historically low multiples where EV/ton stands at historic low of USD28 (Ex. Portfolio Value) against USD31 of our universe while LUCK’s EV/EBITDA (Ex. Portfolio Value) stands at 2.7x against 4.7x of our universe.
- LUCK remains our favorite play from the AKD Cement Universe supported by the lowest cost of production and strong balance sheet providing room to counter any near term pressures (weak margins, strained working capital). Our TP for Jun’20 stands at PkR516.5/sh, implying an upside of 51.8% - Buy.
AKD Research
Lucky Cement is a cement manufacturing and distribution company which is based in Pakistan. Co. is engaged in the manufacture and sale of Ordinary Portland, Sulphate Resistant, and Slag Cement. Co.'s brand names included Lucky Cement, Lucky Star, Lucky Gold, Chairman, and Lucky Sulphate Resistant Cement. Co. maintains production facilities in Pezu (Production capacity: 13,000 tons per day) as well as in Karachi (Production capacity: 8,000 tons per day). In addition, Co. is engaged in developing export markets for bulk loose cement from Pakistan to the Gulf Countries, African Markets, and Far East Region including Nepal & Sri Lanka.
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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