SAFCO’s Q1 misses estimates, says NCB Capital

Saudi Arabia Fertilizers Co.’s (SAFCO) net profit of SAR 423.4 million for Q1 2017 came in nearly 10 percent below NCB Capital’s estimate of SAR 470 million, but in-line with the consensus estimate of SAR 406 million, the brokerage said in an earnings review.

“We believe the variance is due to higher than expected operating expenses (opex) as gross profit was in-line with our estimates. Opex stood at SAR 85 million in Q1 2017, higher than our estimate of SAR 24 million.” the report said.

Revenues rose by 22.5 percent year-on-year (YoY) to SAR 847 million in Q1 2017, 10.2 percent lower than NCB Capital’s estimate.

Based on the brokerage’s calculations, SAFCO’s facilities operated at 94 percent in Q1, which is lower than 112 percent a quarter earlier and NCB Capital’s estimate of 105 percent.

Lower operating rates were attributed to preparation for shutdowns in Q2 and H2 2017.

Gross margin came in at 56.6 percent, higher than NCB Capital’s estimate of 50.2 percent, driven by higher urea prices and lower-than-expected cost of operations.

“In the near term, shutdowns are key risk to the stock, while weak urea outlook on oversupply is a main concern for the long-term,” the report said.

NCB Capital maintained a “Neutral” rating on the stock with a target price of SAR 63.40 per share.