LUCK: Ventures cushion in time of crunch, (AKD Daily, Sep 21, 2020)
AKD Daily
LUCK: Ventures cushion in time of crunch
- We update our investment case for LUCK, incorporating the FY20 detailed accounts where we adjust our working capital assumption as working capital cycle moves towards normalcy after worsening in FY20 due to company providing discounts, while also adjusting gas tariff assumption and streamlining difference between PBS price and realized price.
- Real surprise lies in company’s other ventures where Kia Lucky Motors (KLM) stands out, as company posted positive operating margins while cement operations in Congo also posted impressive net margin of 13% for FY20. We also incorporate upcoming clinker plant in Iraq into our valuations, increasing the ventures contribution to PkR47/sh from PkR22/sh previously.
- We continue to like the scrip based on company’s efficient local cement operations where gross margins of 14.3% for FY20 against 1.9% of peers (MLCF, CHCC, FCCL, DGKC) stand as a testament, while company's strong market network will aid in capitalizing on the status of largest cement producer.
- Company is currently at EV/EBITDA of 6.3x (against 7.7x of AKD Cement Universe) and after having a dull FY20, we expect earnings to grow at a CAGR of 19% for FY21-24 as prices improve in North while dispatches expected to grow at 12% for FY20-23. We have a Buy stance on the stock with our Jun’21 TP of PkR761.3/sh providing upside of 15%.
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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