AKD Securities Limited – Off the Analyst’s Desk

Karachi, August 10, 2018 (PPI-OT): EFERT: Result Review 2QCY18

Below our expectations, EFERT posted consolidated NPAT of PkR3.26bn (EPS: PkR2.44) in 2QCY18 vs.NPAT of PkR2.48bn (EPS: PkR1.86) in 2QCY17, an increase of 31%YoY.

The increase in 2QCY18 earnings resulted from: 1) 33%YoY growth in topline on account of higher urea prices (+11%YoY) and healthy Urea/DAP offtake of 497k/120k tons during the period, 2) 42%YoY decline in finance cost on account of improved cash flow position along with swift debt deleveraging and 3) lower effective tax rate of 33% in 2QCY18 against 41% in 2QCY17. Gross margins on the other hand, declined by 1.2pptsYoY to 29.2% owing to higher proportion of low margin DAP offtake in total sales mix.

On a cumulative basis, 1HCY18 earnings clocked in at PkR7.15bn (EPS: PkR5.35) compared to PkR4.12bn (EPS: PkR3.08) in 1HCY17, up 74%YoY. Alongwith the result, the company also announced an interim cash dividend of PkR4.0/sh (payout ratio: 75%).

Having gained 20%CYTD, the stock currently trades at a forward P/E of 8.5x where our Jun’19 TP of PkR87.3/sh offers a total return of 16% from current price level. ACCUMULATE!