Engro Fertilizers Limited - Re-initiating with PT of PKR 66/share; TR of 20%
- We re-initiate coverage on EFERT with a BUY call driven by our Jun-18 PT of PKR66/share offering a capital upside of 10% along-with dividend yield of 10%.
- With overall fertilizer sector dynamics likely to remain dull, dividend yield emerges as the only attractive investment driver where we expect the company to maintain its payout ratio of 90% as working capital eases due to reducing Urea inventory and gradual release of subsidy. Moreover accrual of ~PKR1bn pa in GIDC, which is being withheld by the company, should also allow EFERT to pay out DPS of PKR6.0 and PKR6.25 in 2017 and 2018, respectively.
- Over medium term, we expect the government to allow annual Urea export quota of ~300Ktons to the industry in order to i) ease their cash cycle emanating from delays in subsidy disbursement, ii) continued supply overhang and iii) pressures on External Accounts.
Engro Fertilizers Limited is a Pakistan-based company, which is engaged in manufacturing, purchasing and marketing of fertilizers. The Company's brands include Engro Urea, Engro NP, Engro DAP, Zingro, Engro MOP, Engro SSP and Engro Zarkhez. Engro NP is the Company's fertilizer brand with Nitrogen and Phosphorous content in equal quantity. Engro DAP primarily contains Di-Ammonium Phosphate, and is imported by Engro EXIMP and marketed by the Company. Engro DAP is marketed in approximately 50 kilogram bags. Zingro is a micronutrient fertilizer, and is imported by Engro EXIMP and marketed by the Company. Engro Zarkhez has Nitrogen, Phosphorous and Potassium, and is primarily offered for sugar cane, fruit orchards, vegetables, potato and tobacco farming. Engro Envy is primarily offered to urban market for gardens, lawns, flower beds, fruit plants and ornamental plants. The Company is a subsidiary of Engro Corporation.
Elixir Securities Pakistan is a Corporate Member of the Pakistan Stock Exchange & Pakistan Mercantile Exchange and is one of the leading securities brokerage & investment banking firms in Pakistan, established since 1994. Our principal business activities include all aspects of Pakistan’s Capital Markets covering Securities Brokerage (Equities, Fixed Income and Commodities), Corporate Finance & Capital Markets Advisory (M&A, ECM, DCM) and Investment Research (Economics & Securities). We are one of the most active & aggressive Broker-Dealers in Pakistan executing trades for most of the Top 20 Global Brokers with unmatched corporate access credentials and have successfully advised and closed on some landmark ECM transactions in the history of Pakistan including the largest deal in frontier Asia (USD 1.02 billion). Our Clients include foreign and domestic financial institutions (Banks, Asset Managers, Insurance Companies, Pension Funds) corporates, HNWI’s and retail investors. This is supported by a very strong and independent research capability, which is quoted regularly in both local and international media.
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