FATIMA target price raised to Rs. 47 by AKD Securities

AKD Securities has just released an update on its coverage of Fatima Fertilizer(FATIMA) Company stock. The research house has raised its Dec 24 FATIMA price target to Rs. 47 per share.

Key Points from the Report:

Gas Price Scenario:

Fatima Fertilizer Company’s primary Sadiqabad plant, which accounts for 51% of the company’s total urea capacity, operates on Mari network gas. Currently, the prices stands at PkR580 per mmbtu for feed gas and PkR1,580 per mmbtu for fuel gas.

However, analysts believe that Mari gas prices will align with SNGP’s network price of PkR1,597/mmbtu for both feed and fuel starting from 2QCY24. This alignment is expected to coincide with an anticipated increase in urea prices to approximately PkR5.0k per bag.

Furthermore, the Sheikhupura plant, receiving a mix of system gas and RLNG (subsidized), faces an effective gas cost of approximately US$5.6-5.8/mmbtu. Any rise beyond US$7.5/mmbtu, due to an increase in the share of RLNG in the mix, could render the plant unfeasible to operate. Despite the high gas cost at the Fatimafert plant, analysts project gross margins to be 27.8% in CY24, slightly lower than previous periods.

Focusing on Balance Sheet Strength:

Fatima Fertilizer Company has significantly reduced its total debt from PkR25.5bn in December 2022 to PkR13.1bn as of September 2023. This reduction is expected to halve the company’s financial charges in CY24, providing further support to earnings. Moreover, with increased short-term investments, other income is anticipated to remain elevated in CY24. Additionally, the company’s board has approved investments of PkR1.25bn in NRL (33.3% share in a mining project) and ~PkR7.7bn in RIETs, indicating a move to diversify future earnings.

The company also remains committed to corporate farming and its retail banking venture.

Investment Perspective:

With the strengthening of the company’s balance sheet, analysts have slightly revised the Dec’24 target price upward to PkR47 per share from the previously held PkR45.0 per share. The company is currently trading at a CY24/25 P/E of 2.9/2.9x. The revised target price provides an upside potential of 21% from the Last Day Closing Price (LDCP) and a CY24 dividend yield of 14.1%. However, risks to this base case include the curtailment of gas to the Fatimafert plant after March 2024 or higher gas prices.

Disclaimer:

The information in this article is based on research by AKD Securities. All efforts have been made to ensure the data represented in this article is as per the research report. This report should not be considered investment advice. Readers are encouraged to consult a qualified financial advisor before making any investment decisions.