Fertilizer Sector continues to be undervalued; Price to earnings at a meagre 4.61 multiple

Of the 5.1% GDP growth rate in the Fiscal year 2017, Pakistan’s agriculture sector contributed around 1% on an average to the total GDP growth. With net investments increasing, the Agriculture Sector is poised to stage a comeback.

According to estimates, GDP Growth is expected to surpass 5.5% on the back of rebound in agricultural output due to improvement in crops of sugarcane and cotton. Lack of effective policy in agriculture sector continues to increase the Agriculture imports. During the fiscal year 2017, the total share of Agri imports reached 15%, which is forecasted to hover around 16% during the current fiscal year 2018.

Pakistan Stock Exchange performance year to date has yielded a return of -14.81%. Fertilizer Sector on the other hand has not fared any better. With a return of -16.71% during the last 10 months, the Fertilizer Sector is trading at a Price to Earing Ratio of 4.61.

Comparative P.E.’s of Sectors within KSE-100

Sector Name

Sector P.E.

Commercial Banks

7.59

Cement

9.39

Textile Composite

10.21

Pharmaceuticals

19.76

Food & Personal Care Products

33.81

Transport

49.97

Tobacco

51.62

Chemical

25.91

Investment Banks/Companies & Securities Companies

34.56

“The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.”

Fertilizer Sector’s P.E. is currently at a 4.61 multiple, the lowest in the top 10 sectors of the KSE-100 listed sectors. The highest P.E., on the hand is of the Tobacco Sector with a multiple of 51.62.

Key Ratios

Symbol

Name

P.E.

Dividend Yield

Earnings Yield

Payout Ratio

ENGRO

Engro Corporation Ltd.

2.47

8.23

40.49%

20.32

FATIMA

Fatima Fertilizer Co. Ltd.

6.45

10.80

15.50%

69.66

AHCL

Arif Habib Corporation Ltd.

7.31

7.79

13.68%

56.94

FFBL

Fauji Fertilizer Bin Qasim Ltd.

7.82

11.17

12.79%

87.34

FFC

Fauji Fertilizer Co.

8.64

9.88

11.57%

85.36

EFERT

Engro Fertilizer

8.93

11.56

11.20%

103.23

DAWH

Dawood Hercules Co. Ltd.

10.09

15.70

9.91%

158.41

Dawood Hercules (DAWH) continues to have the highest P.E within the Fertilizer sector. Whereas, Engro Corporation (ENGRO) has the lowest P.E. in the sector.

Comparing individual stocks within the sector, it is easier to assume that Engro Corporation stocks may witness an upward movement in the coming months as it continues to remain undervalued against other scrips.

Historical imports reveal a declining import data over the course of last three years.

Whereas, the Fertilizer sector due to surplus production has also seen a significant increase in the exports since the beginning of 2017.

The overall sentiment in the market has been marred by Pakistan’s perennial political noise yet again during the current year. If, and ever the situation does take a turn for the positive the fertilizer sector offers a lucrative opportunity. 

Posted on: 2017-10-19T09:57:00+05:00