Engro Fertilizer Limited: Post EFERT’s 9MCY15 results (EPS: PkR7.45), we tweak our CY15F/CY16F EPS estimates by ‐3%/+12% to PkR12.30/PkR11.85, with delayed urea pricing adjustment pushing offtake to next year. While we also revise our DPS estimates for CY15F/CY16F at PkR6.50/7.75 vs. PkR7.50/8.00 previously, we maintain our Jun’16 TP at PkR110/share.[embeddoc url=”http://investorguide360.com/wp-content/uploads/2015/11/MkTPulse-EFERT-Concerns-overplayed-09-11-2015.pdf” viewer=”google”]
Revision in earnings estimate is mainly due to availability of sufficient inventory (Sep’15 urea stock: Industry/EFERT at 770k/171k tons) and possible further delays in urea price determination, leading to lower offtake in immediate‐term. We estimate EFERT’s urea stock may rise to 122k tons for 1QCY16F.
Furthermore, we believe noise regarding reversal of Guddu gas is overplayed while recent events impacting energy mix (commencement of LNG to IPPs) may allow the company to look for alternatives till KPD gas kicks in. EFERT is trading at a CY16F P/E of 7.24x vs. market P/E of 9.08x, and offers a forward D/Y of 9.0%. Note that our estimates/TP did not incorporate Guddu gas beyond CY15 where any extension in the same can lead to +ve surprises.