Whats easier? Predicting Fauji Fertilizers earnings or teaching a young bloke how two and two make four - its undoubtedly the former. The simplicity of FFCs business earning model is such that you wouldn need Paul the Octopus to forecast the firms future earnings. Just do the elementary mathematics - find out its sales volume, know the price - and the rest follows in a familiar pattern.
The companys topline, which grew by 21 percent year-on-year, would have been a lot thinner had it not been for a massive urea price increase following the curtailment of feedstock gas for manufacturers across the board. Interestingly though, gas curtailment didn dent FFCs urea production as it remained at 1.23 million tons - exactly the same level achieved a year ago.
So why the price increase, one may ask. It does not have any clear answers as it was supposed to offset the manufacturers losses in case of a feared drop in production, which has not been the case.
All it has done instead, is boosted the manufacturers respective toplines - something which FFC would not mind one bit, given that it was the least affected of the lot anyway by the courtesy of being connected to the Mari gas field. The surge in urea prices helped the firms gross profit margins to remain largely stable during the period.
The cash-rich company, which is often lightly termed as a ank by many in the market, did not disappoint its shareholders in terms of payout yet again. FFC continues to pay all what it earns given little room for expansion in the firms operations as well as that of the industry.
Not many companies in the region - let alone Pakistan come close to FFC when it comes to the dividend yield. Based on the assumption that FFC will double its half yearly earnings come December, for which there is every reason to believe it would, the firm is offering a mighty 13 percent dividend yield at present. Forget the capital gains that might be on offer in the meanwhile - talk about safe scrips.
FFC seems well poised for another year of record high earnings as the urea business hardly faces any risks, evident by the recent gas curtailment episode. And if anybody is wondering what might happen to the margins once the feedstock gas is restored - they will not bring the prices down - rest assured. Enjoy the cash cow that FFC is.
FFC P&L
Rs (mn) 1HCY10 1HCY09 % chg 2QC10 2QCY09 % chg
Sales 19,947 16,897 18% 10,448 8,664 21%
Cost of sales 11,113 9,281 20% 5,658 4,776 18%
Gross profit 8,834 7,615 16% 4,789 4,682 2%
Gross margin 44% 45% -2% 46% 54% -15%
Other income 1,525 1,565 -3% 263 274 -4%
Finance cost 494 520 -5% 230 229 0%
PAT 5,101 4,548 12% 2,372 1,861 27%
EPS (Rs) 7.52 6.70 3.50 2.74
Source: KSE notice
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