Intermarket Pulse: EFERT: Healthy D/Y - a priceless attribute in jittery market dynamics
- We revise up our Dec’18 target price for EFERT to PRs77.5/sh, but maintain Neutral stance on the stock. Our revised TP is up c. 5% post FY19F budget and c. 10% from our last estimates; new EPS estimates are PRs8.6/9.1/9.8 for CY18/19/20F, based on slightly higher Urea retention prices and additional gas flows of c. 9mmcfd.
- EFERT has planned a BMR of c. PRs3bn for compressor modification which would result in higher gas flows of 8-10mmcfd – 4%+ higher Urea production (c. 75k tons) than previous estimates and incremental earnings contribution of c. 6.5%. Additional gas flows would serve as growth trigger in short term and cushion against depleting MARI reserves, over the medium term, in our view.
- Though we are less optimistic about long term earnings growth potential in the fertilizer space (EFERT 5yr EPS CAGR is 4%), but soft recovery in Urea pricing power and defensive attributes in current market dynamics are key attractions, in our view. Despite our Neutral stance on the stock, EFERT is trading at forward P/E of 8.4/8.0x (for CY18/19F) and D/Y of 12%.
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.
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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