DGKC: Valuation mismatch warrants re-rating
- ​​We revise up DGKC’s SoTP based Jun’17 TP to PkR254/sh, based on estimate revisions of 7-10% over FY17-18F and change in our valuation methodology. We have blended target EV/EBITDA with DCF to value DGKC’s core operations, which stands at a steep discount to the industry’s core cement valuations.
- Our new EPS estimates reflect the substitution of DKGC’s exports with higher-margin local dispatches amid robust demand, pass-on of increasing coal prices and increasing contribution from dividend income (21% of earnings). DGKC’s investment portfolio accounts for about 30% of our valuation (PkR73/sh).
- The stock is currently trading at an unjustified discount of 35% on core EV/EBITDA (4.6x) vs. IMS Cement Universe (7.1x). The valuation mismatch is despite efficient plant operations and sizeable dividend income. Based on only EV/EBITDA our TP could have been PkR288/sh.
Co. is engaged in the production and sale of Ordinary Portland and Sulphate Resistant Cements.
Intermarket Securities Limited (IMS) is a full service corporate brokerage firm based in Karachi, Pakistan. We service both domestic and international clients. IMS was ranked #2 Best Local Brokerage and #3 Best for Overall Country Research for 2016 by AsiaMoney.
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