Morning Briefing for February 14, 2014 – Standard Capital - AsiaNet-Pakistan

Morning Briefing for February 14, 2014 – Standard Capital

February 14, 2014 | Brokerage | Share:

Karachi, February 14, 2014 (PPI-OT): Fauji Cement – Impressive results to follow suit

FCCL is going to announce its 1HFY14 results on Feb 18 and Standard Capital expects the company to post net earnings of Rs 1200mn (EPS: Re0.87).

According to Standard Capital, last year FCCL reported EPS of Re 0.67. The icing on the case could be an interim dividend for the first time which could be Re 0.90 paisas or Re 1/sh

Though Standard Capital has prepared a financial model for FCCL which decipher FY14 EPS of Rs2.48 (June DCF target Rs 23 – 24/sh). Normally, north zone cement companies show growth pattern in sales during 3Q and 4Q. (Wait for Standard Capital’s detailed call in due course).

At current price level, FCCL offers an attractive upside potential of 33% from Standard Capital’s June target. BUY.

Local volumes are expected to increase…

Fauji Cement’s top line is expected to increase by 3.4% to PKR.12bn.in 1HFY14, largely on the back of company’s local sales volume 950k tons which are impressive in the wake of government based projects. Standard Capital has taken the price of Rs518/50kg bag as a base case to arrive at local sales figure.

Hence Standard Capital sees Northern zone companies taking benefit of price increase from last year. Though going forward, FCCL has to divert its export chunk to other markets since they may lose the advantage of Afghan market.

During 1HFY14, FCCL exported mere 227k tons (wherein per month average sale is decreasing from 37k tons to mere 15k tons – hence justifying Standard Capital’s claim that FCCL will lose Afghan market).

Stable PKR against USD will provide some more respite to bottom line and Standard Capital expects FCCL’s financial cost to go down, as the company is able to absorb the financial burden using its internally generated funds. Furthermore, stable exchange rate in 2Q in addition to currency swap agreement will provide some respite from forex losses.

Alternate Energy Source…

FCCL is to install WHR system expected in the near future with the expected cost of the plant is ~PKR2.2‐2.4bn. This will reduce its reliance on national grid by around 22% which would create a positive impact on the EPS.

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