Intermarket Pulse: FFC: Better dispatches during 4Q overplayed, Maintaining Sell
We expect FFC to post 4QCY16 EPS at PkR2.84, down 25%YoY but up 36%QoQ. This will take CY16F EPS to PkR8.74, down 34%YoY; we also expect final cash dividend of PkR2.55/sh, which would take full year DPS to PkR7.70. We maintain our Sell stance on FFC as the stock is most exposed to weak sector dynamics.
Major expectations/assumptions for 4QCY16 include (i) 8%YoY jump in Urea offtake, (ii) over PkR100/bag decline in Urea retention prices, (iii) increase in finance cost due to re-leveraging of books, and (iv) decline in dividend income from associates.
Our Sell stance is based on restricted earnings growth outlook, highly concentrated fertilizer business and limited room for volumetric/price increase. Nevertheless, the stock has rallied +12% since Dec’16 on anticipation of better dispatches in 4Q. Our Dec’17 TP of PkR105.3 implies downside of 3.1% (including 7% D/Y).
Fauji Fertilizer is engaged in the manufacturing, purchasing and marketing of fertilizers including the investment in other fertilizer manufacturing operations. As of Dec 31 2004, Co. had a design capacity of 2,455,000 tonnes for urea production and 445,000 tonnes for DAP production.
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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