By: Pearl Securities Limited
Outstanding fundamentals and market performance justify our pick of the day, Biafo Industries Limited (BIFO). Strong stock appreciation of 85% YoY in CY14 is corroborated by attractive reward policy and solid operational enhancements. Remarkable earnings growth of 72% YoY in 1Q FY15 is due to substantial increase in sales and gross margin improvement. With increased profitability, management raised cash payout by 50% with dividend of PKR 3/share for the term.
The explosives manufacturer has highly encouraging reward policy that seems to be improving with the firm’s profitability. BIFO issues cash dividends every quarter making it a strong investment choice to investors. In FY14, the firm issued cash rewards of PKR 14/share, just 8% YoY greater than the previous year. However, in the first quarter of FY15, the firm has upgraded payout by 50% YoY to PKR 3/share against PKR 2/share in the same period last year. We expect the company to maintain reward of PKR 3/share with HY results. Overall we expect the firm to enhance accumulative dividend for FY15 to PKR 15-16/share.
Increased E&P exploration, cement production and development under PSDP is expected to derive solid revenue. Suppressed prices of raw materials stand to enhance profitability. Improved rewards with profits can be expected. A downside to operations will be if E&P companies reduce exploration from oil decline pressure. We expect, the scrip has potential to chase its Target Price of PKR225/share, showing 21% upside potential with the support of an attractive D/Y of 9%. Buy