Fauji Fertilizer Company announces 1H 2011 accounts

KARACHI: The Fauji Fertilizer Company (FFC) announced profits in 1H2011 despite enhanced gas curtailment since the start of the year.

Higher urea prices and an 89 percent increase in other income were the major growth drivers as the company reported earnings of Rs 9.65 per share (PAT: Rs 8.2bn) versus an EPS of Rs 6.01 (PAT: Rs 5.1bn) in 1H2010, up 61 percent YoY. FFC also announced a second interim cash dividend of Rs 4.75 per share taking the cumulative dividend for the year to Rs 9.25 per share.

As the result, FFC revised down earnings estimate for 2011 and now expect the company to post earnings of Rs 20.81 in 2011. With the recent fall in the scrip’s price we upgrade our stance from ‘Hold’ to ‘Buy’ as it offers a dividend yield of 13 percent and a potential upside of 12 percent to target price of Rs 169.

Revenues grow by 21 percent YoY on higher urea prices. Albeit, lower offtake of 1.2 million tonnes (down 5%YoY) due to gas curtailment, FFC’s revenues grew by an impressive 21 percent YoY to Rs 24.2 billion in 1H2011. The jump was primarily driven by higher urea prices (average weighted ex factory prices up 29 percent YoY to Rs 1,030 per bag during the period). Consequently, gross margins significantly improved to 57 percent, up 1200bps YoY.

Higher dividend income from FFBL (Rs 2.3bn, up 72% YoY) helped the company’s bottom line to sustain the growth despite rising distribution and other expenses. Other income on the whole increased by 89 percent YoY to Rs 2.9 billion in 1H2011, while distribution expenses stood at Rs 2.2 billion, up 16 percent YoY, and other expenses rose by 78 percent YoY to Rs 1.1 billion in the same period. As a result, FFC posted earnings of Rs 8.2 billion (EPS: Rs 9.65) compared to profits of Rs 5.1 billion (EPS: Rs 6.01) in 1H2010.

As the company posted expected result, it trimmed down earning estimates slightly to Rs 20.81 per share from Rs 21.69 per share expected earlier.

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