AKD Securities Limited – FATIMA: CY14 Result Review

Karachi, March 27, 2015 (PPI-OT): Fatima Fertilizer (FATIMA) announced NPAT of PkR9.3bn (EPS: PkR4.41) in CY14, registering an increase of 15%YoY as compared to NPAT of PkR8.0bn (EPS: PkR3.82) in the previous year.

In 4QCY14 alone, the company recorded NPAT of PkR2.8bn (EPS: PkR1.34), down 7%QoQ against NPAT of PkR3.03bn (EPS: PkR1.45) in 3QCY14 as the impact of seasonality subsides in 4Qtr, historically. In addition to this, CY14 result was accompanied by a full year cash dividend of PkR2.75/sh.

Key highlights of the result include: 1) 49bps growth in gross margins on account of a 5.3%YoY increase in urea prices, 2) 10% decrease in finance cost and 3) 25%YoY or PkR270mn increase in administrative expenses as the company expanded its dealer/distribution network.

Gaining 6.0% CYTD, FATIMA trades at a forward P/E of 7.8x, where AKD Securities Limited’s Dec’15 TP of PkR50.27/sh implies 32.6% upside. Although AKD Securities Limited updates AKD Securities Limited’s TP post release of detailed accounts, FATIMA remains AKD Securities Limited’s top pick in the fertilizer sector due to: 1) having GSA for feed gas locked at US$0.70/mmbtu Fatima will be amongst the prime beneficiaries of any increase in feed gas prices, 2) possible inclusion in the list of Sharia complaint stocks on back of swift deleveraging and soft interest rate environment, and 3) attractive CY15F D/Y of 10.6%.