EFERT: Mixed bag of positives and negatives; steep correction offers Buy stance
- We lower Engro Fertilizer’s (EFERT) price target to PkR66.6, but maintain Buy stance as the stock has corrected 10% CYTD. We have also cut down EPS estimates for CY17/18/19F to PkR6.93/6.77/7.00 to account for 1Q result and lower Urea retention prices.
- During 1Q, EFERT announced EPS of PkR1.24, down 22%YoY, led by decline in DAP offtake by 43%YoY, sharp rise in distribution expenses and 6%YoY decline in local Urea offtake vs. industry’s growth of 12%YoY.
- With major debt re-profiling, we believe EFERT can continue to maintain 90%-100% payout policy which may continue to limit downside factors against industry headwinds. That said, EFERT is currently trading at an attractive CY17/18F D/Y of 10%.
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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