ENGRO FERTILIZER

Dear Clients,

– Engro Fertilizer Company Limited (EFERT) announced its annual result for CY20 posting consolidated earnings of PkR18.1bn (EPS: PkR13.6) as compared to PkR16.9bn (EPS: PkR12.6) in the same period last year, up by 7%Y/Y.

– The result is above our expectations due to recognition of one time gain on accounting treatment of GIDC.

– The result was accompanied with a final cash dividend of PkR4.0/sh that took the cumulative payout to PkR13/sh during CY20.

– EFERT’s topline decreased by 13%Y/Y on the back of 11%Y/Y decline in urea prices and 28%Y/Y reduction in DAP offtakes.

– Additionally, 625bps reduction in interest rate help reduce the financial charges of the company by 17%Y/Y.

– Other income also decreased substantially by 62%Y/Y due to absence of one off gain that was recorded last year on account of sale of land.

– To highlight, the company recorded a one-time gain on GIDC (PkR2.1bn) accredited to the accounting treatment of GIDC.

– The company’s profitability was contained by loss allowance on subsidy receivable amounting to PkR1.2bn.

– During 4QCY20, the company posted earnings of PkR5.0/sh as opposed to PkR4.8/sh in corresponding period last year, up by 4%Y/Y.

– The revenue decreased by 36%Y/Y and 26%Q/Q because of decline in urea and DAP offtakes by 17%Y/Y and 68%Y/Y, respectively.

– The company’s effective tax rate clocked in at 8% during 4QCY20 due to tax reversal.

– We have an Outperform stance on EFERT with a TP of PKR66/sh that provides a total return of 16% from the last close. The scrip offers an attractive dividend yield of 13%. The stock is currently trading at a forward PER of 6.3x.

Regards,
KASB Research