The Bell about – FCCL: Downgrade to hold on strong price performance – Elixir Securities Limited
Karachi, June 04, 2013 (PPI-OT): Stellar earnings in 9MFY13: Fauji Cement Company Limited (FCCL) posted profit of PKR1,570mn (EPS: PKR1.18) for 9MFY13, up 10x YoY .
According to Elixir Securities Limited sharp increase in profitability was attributable to 1.0x higher EBITDA margin during 9MFY13. Profit for 3QFY13 was PKR647mn (EPS: PKR0.49), up 1.6x YoY.
Strong retention prices supported margins in 9MFY13: Average retention prices increased by 23% YoY during 9MFY13. This was on account of strong local prices. Elixir Securities Limited expects the retention prices to remain stagnant in the near term.
Lower finance cost also supported earnings: Finance cost declined by 4% during the 9MFY13 to PKR1.1bn mainly due to lower interest rates along with debt repayment during last year. The company’s debt has dropped by 15% during 9MFY13 to PKR11.5bn. Elixir Securities Limited expects FY14 finance cost to drop by 25% to PKR1,116mn.
Dividend estimates revised to PKR1.0/share: Elixir Securities Limited has revised FY13 dividend estimate to PKR1/share from PKR0.5/share. The upward revision of dividend estimates is because of strong cash position of the company as of 3QFY13.
Estimates tweaked; downgrade to HOLD: Elixir Securities Limited has revised down Elixir Securities Limited FY13-15 EPS estimates by 8-14%. Using PER of 6.0x on FY14 earnings, Elixir Securities Limited Dec-13 PT comes out to PKR11/share. The stock has outperformed KSE100 index by 22% since announcement of its 9MFY13 financial results. Elixir Securities Limited thus downgrade FCCL to HOLD!
Key Financials Outstanding Shares: 1,331mn (PKR mn) 3QFY12A 3QFY13A YoY 9MFY12A 9MFY13A YoY Net Sales 3,209 4,073 27% 7,466 11,639 56% Cost of Sales 2,290 2,742 20% 5,818 7,873 35% Gross Profit 919 1,331 45% 1,648 3,767 129% Operating Expenses 69 73 6% 154 243 57% EBITDA 1,167 1,576 35% 2,148 4,481 109% Other Income 7 30 352% 15 51 234% Other Charges 21 65 211% 14 166 1061% Finance cost 496 337 -32% 1,208 1,155 -4% Profit before tax 339 886 161% 287 2,253 685% Taxation 96 239 149% 146 684 369% Net Income 243 647 166% 141 1,570 1011% EPS (PKR) 0.18 0.49 166% 0.11 1.18 1011% Source: Elixir Research
Strong retention prices supported margins in 9MFY13
FCCL’s earnings in 9MFY13 were mainly driven by strong retention prices during 9MFY13. Average retention per ton for 9MFY13 increased to PKR6,292/ton, up 23% YoY. This was on account of strong local prices. . Elixir Securities Limited expects the retention prices to remain stagnant in the near term because the peak season of February-March has passed without any major price increase.
Lower finance cost also supported earnings
Finance cost declined by 4% during the 9MFY13 to PKR1.1bn mainly due to lower interest rates amid debt repayments during last year. The company’s debt has dropped by 15% during 9MFY13 to PKR11.5bn. Elixir Securities Limited expects FY14 finance cost to drop by 25% to PKR1.1bn. Due to large amount of debt on its book, FCCL’s earnings are very sensitive to interest rate cycle. A 200 bps increase in interest rate can increase finance cost by 15% in FY14 (EPS impact of PKR0.1 or 5%).
Dividend estimates revised to PKR1.0/share
Elixir Securities Limited has revised FY13 dividend estimate to PKR1/share from PKR0.5/share. The upward revision in dividend estimate is because of strong cash position of the company despite payment of preferred dividend. As of 3QFY13, the company held cash balance of PKR1.5bn.
According to Elixir Securities Limited estimates, the company will have cash of PKR1.46/share at end of FY13 after scheduled debt repayment of PKR313mn during 4QFY13. Even after paying preferred dividend of PKR0.16/share, Elixir Securities Limited estimates the company to have cash of PKR1.3/share. Being on the conservative side, Elixir Securities Limited expects the company to pay PKR1/share as dividends to common share holders.