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Agrium Down 4% Despite Credit Suisse Confidence

Credit Suisse raised its estimates and target price, and maintained an Outperform on Agrium Inc. (AGU.TO).

Reiterate Outperform on AGU. "We maintain our constructive view on AGU (and the rest of the fertilizer sector) as high grain prices and tightening fertilizer supply/demand fundamentals set up for a very strong 2011/12 fertilizer year. AGU's wholesale outlook is solid due to strengthening fertilizer prices and the company's natural gas cost advantage while the retail business should also perform well on the back of strong farmer sentiment. Valuation also looks attractive. On our 2012 estimates, AGU shares are currently trading at 9.3X P/E and 6.1X EV/EBITDA, compared to its 5-year historical multiples of 12.1X P/E and 8.1X EV/EBITDA."

Raising Estimates and Target Price: "We are increasing our earnings estimates to reflect a stronger retail outlook, higher wholesale fertilizer prices that have already been booked for fall deliveries, and lower natural gas cost assumptions than we previously modeled. Our revised 2011, 2012, and 2013 EPS estimates are $9.53, $9.41, and $8.67 (from $8.70, $8.40, and $7.60) respectively. Our natural gas cost assumptions in our model are $4.14/mmbtu in 2011, $4.64/mmbtu in 2012, and $5.25/mmbtu in 2013. Our target price increases to $116 (from $111)."

Indian potash contracts are a positive development. "Canpotex and the Indians reached an agreement for 670k tonnes of potash with half to be delivered in 4Q11 at $470/tonne cfr and the other half in 1Q12 at $530/tonne cfr. While the 4Q11 price is below expectations (the price is only flat with Chinese contracts), more important in our view is the substantially higher 1Q12 price that establishes a higher floor for the next round of Indian/Chinese contracts. In addition, the Indian volumes ensure that the market will remain tight in the foreseeable future and should support further price momentum in the spot market."

Robust retail outlook. "Farmer sentiment remains high, and AGU's retail business should benefit from increased plantings and farmers' desire to utilize greater crop inputs to maximize yields. Phosphate and potash demand, in particular, is expected to be strong this fall as negative weather conditions prevented some farmers from applying these nutrients during the spring season."

Tightening fertilizer supply/demand fundamentals: "In the wholesale business, AGU anticipates that fertilizer markets will remain tight. In nitrogen and phosphate, lower Chinese export supply is keeping the market tight and is expected to offset new Middle Eastern supply scheduled to come onstream over the next year. In potash, producer inventories are at very low levels and following the Indian contract settlement, Canpotex is now sold out through the end of 2011."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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