By: Nabeel Khursheed, Topline Securities Pvt. Ltd
We revise our earnings estimate for Lucky Cement (LUCK), and reiterate our ‘Buy’ stance on the company, owing to its cost leadership, largest export share & investments in multiple ventures. Now we expect LUCK’s consolidated earnings to grow at 3-year (FY15-17) CAGR of 19%. Our revised earnings forecast for FY15E/FY16F/FY17F is Rs44.4/Rs51.4/61.3, respectively, up 6% versus previous estimates. Hence, we reiterate our ‘Buy’ stance on the company with a 12-month target price of Rs588. The scrip is currently trading at FY15E and FY16F PE of 11.4x and 9.9x, respectively.
In order to remain ahead of its peers, LUCK has branched out from its Pakistan cement business by investing into different ventures, both locally and abroad. Moreover, the company’s aggressive cost reduction strategy would contribute in better margins, we believe. Over the years, LUCK has also mitigated adverse effects of energy crisis in the country and shifted from national grid to its complete in-house power generation. Now the company operates with the lowest energy consumption cost (Rs102/bag in FY14) as compared to average Rs144/bag of Topline Cement Universe.
Earnings to grow at 3-Year (FY15-17) CAGR of 19%
LUCK is trading at FY15E PE of 11.4x. Although the scrip trades at a premium relative to its peers (DGKC’s FY15E PE at 7.6x, FCCL’s FY15E PE at 11.0x & MLCF’s FY15E PE at 6.5x), LUCK’s attractiveness stems from strong growth emanating from its diversification ventures.
We expect company’s earnings to grow at 3-year (FY15-17) CAGR of 19% (FY17F PE of 8.3x), which will potentially lead to contracting premium going forward. Although, we expect LUCK’s core cement-based earnings to increase by a 3-year CAGR of 11%, main earnings will come from its investments portfolio. Moreover, we expect LUCK’s core EBITDA to post 3-year (FY15-17) CAGR of 13% to reach Rs23.4bn in FY17.