Engro Foods (EFOODS): 4Q2018 LPS Rs0.59 vs. LPS Rs0.01 in 4Q2017; (Below Expectations)
- EFOODS posted 4Q2018 LPS of Rs0.59, contrary to our expectations, as lower than expected margins and higher distribution expense weighed down on bottom-line.
- However, the company’s net sales, for the first time in last 13 quarters, witnessed increase, up 13% YoY. We attribute this to higher sales from dairy segment on the back of new products and gradual improvement in UHT market share.
- The company reported gross margins of 8.7%, down 465bps in 4Q2018. Inflationary pressure, higher imported raw material cost on the back of PKR devaluation (24% since Dec 2017) and higher fixed charges led to lower margins, we believe.
- EFOODS’ distribution expenses were higher by 36% YoY during the outgoing quarter. We attribute this to higher advertising spend as the company had been aggressive in media campaigns to re-position its Olpers and Tarang brands.
- Financial charges were up 53% owing to increase in the company’s short term borrowings and higher interest rates, up 450bps since Jan 2018.
- We flag, 1) rising competition 2) decline in processed milk consumption, 3) any unanticipated regulatory change and 4) volatility in international raw milk prices as key risks for EFOODS.
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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