Engro Corporation; dividend exceeds expectations
- Engro Corporation (ENGRO) reported financial results for 2QCY19 wherein the conglomerate reported below expected consolidated EPS of PKR4.97 (up 51% YoY). Along with the result, the company announced half year dividend of PKR8/sh (1HCY19 DPS: PKR15), which is above expectations.
- Higher than expected increase in administrative expenses (+38% YoY) and higher taxation expense (ETR: 50%) remained key areas of deviation from our estimates.
- Net sales of the company rose 19% YoY during the period as (i) 23/11% higher average urea/DAP prices, (ii) 19/39% hike in NP/NPK offtake, and (iii) 8% weighted average increase in petrochemical subsidiary’s (Engro Polymers & Chemicals Limited) realized product prices.
- Encouragingly, COGS rose by a relatively measured 15% YoY. Resultantly, gross margins of the company stood at 29% during the period as compared to 26% in same period of last year. Improvement in gross margins was made possible by (i) drastic 32% correction in international price of key raw material of petrochemical business (ethylene) and (ii) improved urea pricing (up 23% YoY) during the period.
- Other income of the company clocked in at PKR12.9bn, up 74% YoY as a result of increase in average policy rate to 11.8% from 6.3% in same period of last year.
- Similarly, the company’s finance costs rose 1.56x YoY to PKR3.1bn due to the aforementioned reason.
- On a cumulative basis, company profits for 1HCY19 clocked in at PKR6.9bn (EPS: PKR11.93), up 13% YoY. Improvement in profits during the period was driven by (i) improvement in core fertilizer & petrochemical businesses and (ii) higher income on cash & short term investments (PKR102bn as of Mar’19).
- At current market prices, the scrip is currently trading at CY20E P/E of 4.7x. We maintain our Buy rating on ENGRO.
Engro Corporation is an agri based company. Co.'s core business is the manufacturing, purchasing and marketing of chemical fertilizers and seeds. Co. is engaged in the production of Urea fertilizer in Pakistan which is manufactured at Daharki and marketed under brand name Engro. Co. also maintains a seed business and is marketing imported hybrid and open pollinated seeds of maize and sunflower crop under the brand name of Bemisal. Co. has investments in joint ventures engaged in chemical terminal and storage, PVC resin manufacturing and marketing and Automation and Controls businesses.
BMA is amongst the leading financial groups in Pakistan. BMA Capital’s core areas of business include Capital Markets, Corporate Finance & Advisory, Asset Management, and Financial Products Distribution. BMA Capital is the leader in privatisation advisory in Pakistan, having successfully advised on over 50% of all privatisations in Pakistan, by value, in transactions valued in excess of US$4 billion. Recent transactions include joint lead managing the $813 million GDR Offering of 10% of OGDCL on the London Stock Exchange in 2006-07, and advising Etisalat on their successful acquisition of a 26% strategic stake in Pakistan Telecommunications Company Limited (PTCL) for US$2.6 billion, the largest M&A transaction and foreign direct investment in Pakistan’s history. The firm is among the top brokers in the Pakistan equity and treasury markets, and is among a handful of firms that comprehensively cover all segments of the capital markets. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media. BMA Capital’s retail brokerage brand, BMA Trade, has launched a nationwide network of branches as well as a comprehensive online trading platform, enabling investors across Pakistan to take part in the capital markets.
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