ENGRO to sell 12% of EFOODS for PKR92/sh – BMA Capital
BMA Capital Management Ltd.
Market is ripe with rumors that Engo Corp. (ENGRO) has entered in an agreement with Al Marai (Saudi Arab based dairy producer) to sell 91.2mn shares (12% of total outstanding shares) of Engro Foods (EFOODS) to the dairy company.
Recall that we analyzed this possibility in our report titled “ENGRO: Faith will move mountains” dated August 30, 2012.
The deal is rumored to be struck at the price of PKR92/sh. This explains the recent activity in EFOODS which closed on upper cap of 5% yesterday and is currently trading 4.7% up as of last print.
ENGRO holds 673.0mn shares (88.6%) of EFOODS at carrying value of PKR10/sh. This deal translates into a one time gain of PKR7.5bn and cash inflow of PKR8.4bn for ENGRO. Post this deal ENGRO’s stake in EFOODS will drop down to 581.8mn shares (76.6%).
The deal is positive for ENGRO as it would significantly reduce ENGRO’s consolidated debt arising from their fertilizer business.
This will also be positive for EFOODS as it would lead the stock price to realize its fair value.
We maintain our BUY stance on both ENGRO and EFOODS, having recently revised our Dec12 TP for EFOODS to PKR88/sh, presenting 15% upside from last close – BUY!.