Engro Fertilizer (EFERT) is expected to post 3QCY22 net profit of PKR4.8bn (EPS: PKR3.61), up from a loss of PKR98mn in 2Q. This is majorly due to (i) lower effective tax rate, (ii) higher Urea and DAP prices, and (iii) higher trading margins on DAP. Gross margin is likely to rise by 1.5ppt QoQ to 32% in 3QCY22. We expect EFERT to announce an interim cash dividend of PKR3.5/sh. However, the company has a potential to announce a higher dividend, considering its past practice.
We presently have a Buy stance on EFERT (TP PKR92/sh), with estimates subject to revision after a potential Urea and gas price hike. This will not only increase our earnings forecast and valuations, but also improve dividend yield in coming years, reinforcing our liking for the scrip particularly in the case of the emergence of a down cycle in interest rates.
Courtesy- Intermarket Securities Limited