Agrium Inc.

AGU : NYSE : US$90.05
AGU : TSX
BUY 
Target: US$104.00

COMPANY DESCRIPTION:
Agrium Inc. is a leading global producer and marketer of
agricultural nutrients, industrial products, specialty
fertilizers, and a major retail supplier of agricultural
products and services in North America, South America
and Australia.
All amounts in US$ unless otherwise noted

Agriculture — Fertilizer
Q2 BETTER THAN EXPECTED BUT UNEXPECTED POTASH COSTS ADD
TO SHAREHOLDER FRUSTRATION
Investment recommendation
Following a plant outage-plagued 2014 that significantly hurt EPS
potential in the current year, we feel the stability of Agrium’s base retail
segment and the growth in wholesale volumes and earnings bode well
for the company going forward. The strong EPS growth profile due to
substantial volume increases and an improvement in costs over the next
two years offers good value to shareholders. We estimate retail EBITDA
to improve by 9% in 2015, nitrogen wholesale to realize a 750kt (21%)
sales volume improvement (and lower opex costs), and a 900kt (76%)
improvement in potash sales volumes in 2015 as their expansion enters
service, which allows for a normalization of the original tonnage and
additional sales via the retail business for the expanded tonnage. All of
the various plant outages in 2014 created a trough earnings situation
that should materially correct itself in 2015. We then expect to see
further growth into 2016 via the Borger nitrogen expansion, the
continued ramp up of the Vanscoy potash expansion and via retail sales
improvements.
Investment highlights

 Agrium reported adjusted Q2/14 EPS of US$4.31 versus our
estimate of US$4.15, consensus of US$4.11 and guidance of
US$3.85-4.35. Total gross margin was slightly above expectations at
US$1.60 billion versus our of US$1.56 billion estimate. Notably,
Retail gross profit was US$1.35 billion versus our US$1.31 billion
and Other gross profit was US$23 million versus our estimate of nil.
However, Nitrogen gross profit was weaker than expected at
US$137 million, versus our estimate of US$166 million, due in part
to lower volumes resulting from previously disclosed plant outages.
Valuation
We continue to rate the shares of Agrium a BUY but have lowered our
target price to US$104 (from US$106 previously) based upon an 11.5x
multiple to our blended 2015E/2016E EPS.

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