SAFCO’s Q3 misses forecasts on lower operating rates: NCB Cap

Saudi Arabia Fertilizers Co.’s (SAFCO) third quarter net profit of SAR 188.4 million fell shy of NCB Capital’s estimate of SAR 209 million and consensus forecasts of SAR 217 million.

 “We believe the lower than expected results are mainly due to lower operating rates, which offset the improvement in urea prices,” NCB Capital said in an earnings review Tuesday.

Revenue hit SAR 617 million in the same period, missing the brokerage firm’s expectations by 10.1 percent.

NCB Capital said its calculations pointed to SAFCO’s facilities operating at 86 percent in Q3, lower than 96 percent in the previous quarter, and its estimate of 95 percent.

Operating rates are likely to remain low in the fourth quarter on the back of a 76-day stoppage of SAFCO 4.

The Q3 gross margin came in at 43.5 percent, topping NCBC estimate of 41.2 percent, thanks to higher urea prices.

“Based on our calculations, SAFCO’s share in net income of Ibn Al Baytar stood at SAR 13.4 million in 3Q17, lower than our estimate of SAR 22.9 million but significantly higher than Q3 2016 contribution of SAR 3.8 million,” the brokerage firm added.

Key upsides are expansion of SAFCO 4 and strong balance sheet, while main downsides are a muted urea outlook and major shutdowns in Q4 2017.

NCB Capital remained “neutral” on the stock with the target price unchanged at SAR 58 per share.