Equity Analysis /
Pakistan

The Searle Company: Q1 FY 20 preview: Flat earnings this quarter

    Yusra Beg
    Yusra Beg

    Senior Investment Analyst

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    Intermarket Securities
    28 October 2019

    SEARL is expected to post Q1 FY 20 NPAT of PKR670mn (EPS: PKR3.15), flat yoy, but up 43%qoq due to seasonality. We do not expect SEARL to announce any dividend. 

    Key highlights

    • Sales revenue is expected to come off to PKR4,906mn post normalisation from high base SPLY. 
    • We expect GMs to normalise to 44% vs. 40% SPLY due to the impact of higher prices. Margins are expected to remain sequentially flat due to seasonality.
    • We expect SG&A expenses to remain largely stable, while we expect effective tax rate to accelerate to 19% (vs. 14% in SPLY). 

    SEARL gained 26% in the early part of Oct’19 in anticipation of the upcoming acquisition of OBS Pakistan and has since shed 10% to-date. SEARL trades at a FY 20f P/E and P/S of 11.4x and 1.5x, respectively. We have Jun’20 TP of PKR188/sh and a Buy rating on the name.

    Risks: (i) Further PKR devaluation over PKR160 for CY 19, (ii) price reversals on ongoing pending cases, (iii) lower-than-expected volume growth and (iv) delay in expansion projects.