Equity Analysis /
Pakistan

The Searle Company: 3QFY20 preview – Sequentially slightly lower earnings this quarter

  • SEARL is expected to post 3QFY20 NPAT of PKR539mn (EPS: PKR2.54), up 14%yoy but down 5% qoq.

  • Results may differ if SEARL amalgamates Luna Pakistan into consolidated accounts this quarter.

  • SEARL has shed 4.9% CYTD and trades at an FY20f (pre-amalgamation) P/E of 17.0x. Our June 2020 TP is PKR198.

Yusra Beg
Yusra Beg

Senior Investment Analyst

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Intermarket Securities
27 April 2020

SEARL is expected to post 3QFY20 NPAT of PKR539mn (EPS: PKR2.54), up 14%yoy but down 5% qoq due to seasonality. This is expected to take 9MFY20 NPAT to PKR1,652mn (EPS: PKR7.77), down 7%yoy. We do not expect SEARL to announce any dividend.

It is pertinent to mention that the results may differ substantially if SEARL amalgamates Luna Pakistan into its consolidated accounts this quarter. In this event, we expect 3QFY20 consolidated revenue to climb to PKR9,425mn and NPAT to rise to PKR716mn (EPS: PKR3.37), up 53%yoy and 26%qoq. Margins are expected to dilute considerably post-amalgamation, however. 

3QFY20 key expectations

Sales revenue is expected to rise to PKR4,925mn up 7%yoy, but flat sequentially due to seasonality. We expect the full impact of Covid-19 led spike in demand for essential medicines to reflect in 4QFY20.

We expect GMs to normalize and to rise 49.0% in 3QFY20 vs. 46.9% in 3QFY19 due to a stable PKR in 2QFY20. Margins are expected to remain sequentially flat due to seasonality.

We expect SG&A expenses to rise 9%yoy, while effective tax rate is expected to accelerate to 29% (vs. 23% in 3QFY19).

SEARL has shed 4.9% CYTD and trades at an FY20f (pre-amalgamation) P/E of 17.0x. We have a June 2020 TP of PKR198/sh and a Buy rating on the name.