FFBL: Evolving conglomerate but with challenges ahead; Neutral
- We resume coverage of FFBL with a Neutral stance and Dec’17 TP of PkR58.1/sh. Our assigned TP includes core and portfolio value of PkR29/sh each, after applying 30% conglomerate discount. FFBL’s consolidated EPS and DPS estimates are PkR4.10/6.45 and PkR1.50/2.50 for CY17/18F.
- With the CoD of FFBL Power in 2QFY17, all diversified ventures of FFBL would be fully operational in CY17 including Fauji Meat, and Fauji Foods. FFBL’s fertilizer station is expected to save 17-20 mmcfd of fuel gas post supply of ~58MW from FFBLPC, which may lead to smoother sailing of Urea plant at +100% utilization.
- FFBL is currently trading at a P/E of 12.9x/8.2x for CY17/18F; we conservatively believe the company should trade at a discount to market (CY17F) due to risks of having subdued fertilizer dynamics, highly-leveraged books, and continuation of hefty losses from Fauji Foods for the next 2 years at least; however, currency depreciation above 3% p.a. would be an upside trigger to our estimates.
Fauji Fertilizer Bin Qasim Limited is a Pakistan-based holding company. The Company manufactures, purchases and markets fertilizers. It is involved in meat, dairy and coal based energy generation sectors. It has identified its potential business segments and has undertaken investments in the areas of food, financial, power sector and wind energy projects. Its products include Granular Urea, such as Sona Urea, and Di Ammonium Phosphate (DAP), such as Sona DAP. Sona Urea is a synthetic organic compound containing nitrogen in amide form available in the form of white solid prills. It is applied to soil and also suitable in solution form as spray application. Sona DAP contains nutrient element, phosphorous besides nitrogen available in flowing granular form Granules are stronger, harder and of uniform size. It is suitable for various crops and soils recommended for initial application. It produces over 791,260 metric tons (MT) of DAP and approximately 433,610 MT of Urea.
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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