<ul><li><span style="font-family:Arial, Helvetica, sans-serif;font-size:medium;">Stock price is yet to reflect weakness in medium term profitability: Engro Foods, one of Pakistan&rsquo;s largest UHT milk producers (c45% market share), has had a tough time of late, from losing market share to new competitors, to being squeezed on margin and volumes. Furthermore, we expect profitability to remain depressed in the ST, while its valuation already prices in a significant earnings recovery; hence, we initiate coverage with a Sell rating (TP: PKR71; 13% downside). Our 2017-18e earnings are 58-64% lower than consensus as we believe margin pressure has not yet been reflected in consensus numbers. We recognize the potential value-add from Friesland Campina (owns 51% of the company since Dec-16) and have reflected this in our generous 2018-21e r...
