Engro Fertilizer (EFERT): 4Q2018 EPS Rs3.9, +22% YoY (+1% QoQ); DPS Rs3/share (In line with expectations)
- Engro Fertilizer (EFERT) recorded 22% YoY growth in its 4Q profitability, driven by 22% YoY growth in DAP volumes coupled with increase in urea and DAP prices by 25% and 30% YoY, respectively. While urea sales during 4Q2018 were slightly down 2% YoY.
- Gross margins fell short of our expectations and clocked in at 41.5% for urea segment (unconsolidated) vs. 47.4% in 3Q2018 despite increase in urea prices by Rs130/bag w.e.f. Oct 2018 on back of increase in gas prices (feed and fuel both). To note, this increase in gas price was applicable only to 30% of EFERT’s gas as remaining of its gas is on concessionary fixed rate and PP12 (Petroleum Policy 2012) rates.
- We believe, GP margins of Company trimmed QoQ due to impact of currency deval as 70% of Company’s gas prices are indexed to US$ PKR parity.
- Finance cost remained flat during 4Q2018, while increased 22% QoQ due to higher debt borrowing and increase in policy rate.
- Admin cost of the company increased by 42% YoY while other income dropped 88% YoY. Company declared dividend of Rs3/share vs. our expectations of Rs4/share. We believe the company is maintaining stock of surplus cash to finance its upcoming GIDC resolution.
- We flag, 1) PKR depreciation, 2) regulatory control on fertilizer industry, 3) poor crop season and 4) unfavorable decision related to GIDC as key risks to our earnings/valuation forecast.
Topline Securities is one of the fastest-growing brokerage houses in Pakistan. It has strong Equity Brokerage, Economic/ Equity Research, Commodity Trading and Corporate Finance & Advisory functions.
Topline Securities has been endowed with numerous awards by renowned international financial organizations. The highlights of which consists of the award for ‘Best Local Brokerage House of Pakistan’ by Asiamoney Brokers Poll (the largest Asia-focused equity services provider poll) in 2016 and ‘Best Equity Brokerage House’ by CFA Society Pakistan in 2015.
Previously, Topline Securities held the title for ‘Best Brokerage House’ for 4 consecutive years (2011-2014) by Asiamoney Brokers Poll. Other awards include the ‘Best Salesperson’ award by Asiamoney for 6 consecutive years (2011-2016), the ‘Arabia Fast Growth 500’ award and ‘Pakistan Fast Growth 100’ award in 2012 and 2013 by AllWorld Network.
JCR-VIS, a credit rating agency providing independent rating services in Pakistan has assigned initial rating of “A-2” for short term and “A” for long term to Topline Securities. Topline Securities is registered as Underwriter, Book Runner and Research Entity with Securities & Exchange Commission of Pakistan (SECP).
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