Fauji Fertilizer Company looks attractive

Stable earnings outlook, decent dividend yield, better dividend income support from subsidiaries, and diversification into the power business are the key differentiating factors that warrant a BUY call on FFC. Our Dec’21 TP of PKR 131/sh offers a potential upside gain of 19%.

The company continued its impressive profitability growth in CY20 due to one-off gain recorded on GIDC re-measurement and improved urea mar-gins. We believe the company will maintain its stable earnings outlook in CY21 due to rising urea margins. On the demand side, urea offtake is likely to remain firm amidst better farm economics and government support policies. As per the government, LNG-based fertilizer plants are likely to remain operational from Apr’21 onwards, which may push urea inventory levels to 0.35Mn tons in CY21 end. Therefore, we believe that lower inventory levels will keep the pricing power of fertilizer players intact and FFC being the market leader in urea segment, will benefit from the improved pricing dynamics.

Courtesy – BMA Capital Management Ltd.

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