By: BMA Capital Management Limited
Fauji Fertilizer Company Limited (FFC) reported earnings of PKR16.8bn (EPS: PKR13.2) in CY15, depicting a decline of 8% from PKR18.2bn (EPS: PKR14.3) in CY14
The result announcement also accompanied a final cash dividend of PKR3.42/sh, taking full year dividend to PKR11.86 in CY15
The decline in earnings is attributable to higher gas prices coupled with increased repair and maintenance cost, leading to a 420bps YoY decline in gross margins to 34%YoY.
On a sequential basis, earnings clocked in at PKR4.8bn (EPS: PKR3.8) in 4QCY15 compared to PKR3.7bn (EPS: PKR2.9) in 3QCY15, up 31%QoQ.
The QoQ growth in earnings was primarily led by higher urea sales (up 49%QoQ), increased DAP off‐take and 27%QoQ growth in other income to PKR1.8bn.
At last closing, FFC is trading at a P/E of 8.7x. Near term upside in the stock will likely be restricted by concerns of another gas price hike while depressed global urea prices may further aggravate the situation for local players, though unlikely in our view.