x Abu Dhabi, UAEThursday 27 July 2017

Safco's earnings slide viewed as only a blip

Saudi Arabia Fertilisers Company missed analysts' expectations when it reported a dip in its earnings but analysts still forecast a strong long-term return on the stock

Saudi Arabian Fertiliser Company, a unit of the world's largest maker of petrochemicals, surprised the market yesterday when it reported a dip in second-quarter earnings.

But the results are considered a blip on a strong long-term horizon for the heavyweight stock, which is 43 per cent owned by Saudi Basic Industries Corporation.

Shares in the company known as Safco slid to their lowest level in three months yesterday as investors digested a 12.9 per cent slump in second-quarter earnings to 790 million Saudi riyals from 907.2m riyals a year ago. Safco's earnings fell short of most analysts' expectations.

The company attributed the dip in this year's second-quarter profit to a one-time gain from a land sale in the second quarter of last year, a gain that was not replicated this year.

While Safco closed 1.9 per cent lower at 185 riyals on Saudi Arabia's Tadawul bourse, it has gained 10 per cent so far this year as global demand for fertiliser rises amid increasing food prices.

"I expect this to be a peak year for fertiliser pricing," said Heidy Rehman, an analyst at Citigroup.

"Also, as it stands, Safco is highly cash-generative, with a nice dividend. That's the main reason it attracts investors," she said.

The company, Saudi Arabia's largest producer of nitrogen, a key fertiliser ingredient, also announced it would pay a dividend of 6 riyals a share for the first half of this year, maintaining a trend of the past few years.

In a research note, Ms Rehman also said she expected the fourth quarter to be strong, as India becomes a dominant buyer of fertiliser.

As the price of food increases, so does the incentive for farmers to increase crop yields by using fertiliser.

Globally, a basket of basic foods such as meat, grain, vegetables and fruit is 37 per cent more expensive than it was at this time last year, according to a report by the UN Food and Agriculture Organization.

 

fhalime@thenational.ae