SAFCO’s Q4 results in-line with estimates: NCB Cap

Saudi Arabia Fertilizers Co.’s (SAFCO) Q4 2016 net income of SAR 284.5 million was in-line with NCB Capital’s estimates of SAR 280 million, the brokerage said in an earnings review Monday.

“We believe higher than expected sales and gross margin were mitigated by lower than expected income from Ibn Al-Baytar,” analysts at NCB Capital said.

SAFCO’s revenues came in at SAR 765 million in the fourth quarter, 4.7 percent higher than NCB Capital’s estimate.

Based on the brokerage’s calculations, SAFCO facilities operated at 105 percent in Q4, higher than NCB Capital’s estimate of 100 percent but slightly lower than 107 percent the previous quarter.

“We believe SAFCO sold 924,336 tons of fertilizer products, higher than our estimate of 882,000 tons and 832,608 tons in Q4 2015,” the firm added.

Gross margin stood at 40.6 percent in Q4, higher than NCB Capital’s estimate of 38.1 percent. Gross margin growth was driven by higher operating rates, higher urea prices, a cost optimization program, and reduction in spare part inventory provision.

Operating income, therefore, came in 11.7 percent higher than NCB Capital’s estimate, the firm said, adding however that weak performance by Ibn Al-Baytar offset the operational improvement.

“Based on our calculations, SAFCO share in income from Ibn Al-Baytar came in at SAR 2 million in Q4 2016, the lowest on record and versus our estimate of SAR 26.2 million. The weak performance of Ibn Al-Baytar is attributed to a four week-shutdown in Q4 2016,” the report said.

NCB Capital said it remains Neutral on the stock with a target price of SAR 63.4.