FATIMA: Limited earnings growth ahead; Neutral
- We maintain neutral stance on FATIMA with Dec’17 TP of PkR36.9/sh, backed by mixed bag of fertilizer dynamics and lack of upside triggers. We expect FATIMA to post CY17/18F EPS of PkR4.49/4.37 and DPS of PkR2.0 each.
- FATIMA’s financial health has improved with issuance of Sukuk and clearance of substantial inventory as of Dec’16. On a standalone basis, FATIMA had 164k/166k/66k tons of Urea/CAN/NP inventory at Feb’17, of which Urea/CAN may continue to remain at healthy levels on over-supply of nitrogen fertilizers.
- The stock is currently trading CY17/18F P/E of 8.5/8.7x, which implies a discount to market due to subdued 3Yr forward EPS CAGR of just 4%. While CY16 results were accompanied by one-off lower ETR, we see 4%YoY decline in CY17F EPS due to soft nitrogen market despite anticipation of some recovery in phosphates.
Fatima Fertilizer Company Limited is a Pakistan-based fertilizer manufacturing company. The Company is engaged in manufacturing and marketing of Nitrogen, Phosphate and Potash fertilizers. It produces a range of fertilizers, including Sarsabz Calcium Ammonium Nitrate (CAN), Sarsabz Nitro Phosphate (NP), Nitrogen Phosphorous Potassium (NPK) and Sarsabz Urea. Its CAN is a granulated nitrogenous fertilizer. Sarsabz Urea can be applied in various forms and it can be spread in bulk alone or can also be mixed with other fertilizers before application. Its NP can be applied on various types of soils. The Company has a production base for Nitric Acid. The Company has annual production capacity of Urea 500,000, CAN 420,000, NP 244,000, Nitric Acid 500,000 and Ammonia 500,000. It also offers services and support to farmers from education on farming practices and research oriented agricultural practices.
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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