Aug
13
The market of mineral fertilizers currently undergoes the most interesting period of its existence. Like never before world’s population is close to food crisis, or at least – the high inflation of foods due to active consumption of farming products over last few years. Such background, including undersupply and decrease of farmable grounds, make agrochemical sector highly important. Importance births demand, and due to the fact that industry is rather inert – supply cannot meet demand. Then it causes growth of prices at primary types of fertilizers, which is extremely positive upon financials of agrochemical companies.
Agrochemical industry is represented by producers of three primary types of fertilizers – nitrogen fertilizer (manure), and less common phosphoric and potash fertilizers. Producers often sell ready mixes of all fertilizers in optimal proportion.
Nitrogen segment is the most competitive and subjective to influence of many conditional factors in all of agrochemical market, whereas company’s profitability depends upon the price of base commodity – gas, which rises after oil prices, whilst changes are unpredictable. A whole different affair is weaved around potash producers, as their income is related mostly to change of distribution costs, which “eats up” up to 40% of costs, as growth of transport tariffs is much more predictable and stable. Due to this, the most stable and optimal companies are the one producing potash fertilizer.
Ever since year’s start the prices on primary types of products rose sharply. The growth was caused by many reasons, but the primary was the deficit of mineral fertilizers and inflated demand. Ammonia since year’s start added +8.5%, carbamide rose +68.5%, DAP (dibasic ammonium phosphate) grew +109%, potassium chloride climbed +142%. Under such supportive conditions export-oriented company win the most. Russian producers are exactly those kinds of companies. Export forms an average of 80-85%. Therefore we expect some companies to double and triple their primary financials in 2008.
In our report we have evaluated activities of seven Russian companies engaged in agrochemical industry and operating over various segments: Acron, Dorogobuzh, AZOT, KuibyshevAzot, Ammophos, Uralkali and Silvinit. Special attention was aimed at AZOT, Uralkali, Ammophos and KuibyshevAzot. Today stocks of those companies look as the most underestimated and promising considering the financials standpoint, business effectiveness and liquidity. AZOT is specifically interesting, though company’s potential is not as high, its financial condition is stable, as free-float is extremely low, which may lead to a serious volatility. By conducting analysis of given agrochemical enterprises, we recommend “BUY” on stocks of Acron, KuibyshevAzot, Uralkali, Ammophos and AZOT.
Agrochemical companies: Favorite fertilizers - August 13, 2008 (PDF)