AGU's
acquisition of UAP* provides a solid growth
opportunity and accretive
AGU
is targeting EBITDA synergies of $115M by
2010 but that will be contingent on its ability
to merge UAP with AGU's current retail operations.
Prices
for the three major nutrients, nitrogen, phosphate
and potash, remain at record levels due to
tight supply/demand fundamentals. The pricing
momentum for the next 12-18 months should
remain strong with no reason for reduction.
AGU's
trades at a discount to its peers.
On
a consensus '08 EPS basis, AGU trades at a
15.0x multiple versus the fertilizer producer
average of 18.5x and on a P/CF basis at 10.8x
'08 consensus estimates versus 15.5x amongst
the fertilizer producers.
Bloomberg
Valuation (All Consensus Estimates)
| Fertilizer
- Producer |
P/E
2008E |
P/CF
2008E |
| AGRIUM
INC |
15.0x |
10.8x |
| CF
INDUSTRIES HOLDINGS INC. |
17.2x |
14.1x |
| THE
MOSAIC CO |
20.5x |
23.8x |
| POTASH
CORP OF SASKATCHEWAN |
25.4x |
20.0x |
| TERRA
INDUSTRIES INC |
14.5x |
8.8x |
PRODUCER MEAN |
18.5x
|
15.5x
|
| Fertilizer
- Retail |
P/E
2008E |
P/CF
2008E |
| THE
ANDERSONS INC |
14.4x |
N/A |
| SCOTTS
MIRACLE - GRO |
14.3x |
N/A |
| UAP
HOLDING CORP |
19.2x |
32.4x |
RETAIL MEAN |
15.3x
|
32.4x
|
| International |
P/E
2008E |
P/CF
2008E |
| ISRAEL
CHEMICALS LIMITED |
19.0x |
15.9x |
| YARA
INTERNATIONAL ASA |
12.4x |
10.4x |
INTERNATIONAL MEAN |
15.7x
|
13.2x
|
Source:
Bloomberg
Nutrient Prices At Record Levels
Prices for all three major nutrients, nitrogen,
phosphate and potash, remain at record levels
due to tight supply/demand fundamentals.
Potash:
The potash market is extremely tight with
most suppliers sold out for the balance of
2007 and into parts of 2008. Potash prices
continue to move higher with major suppliers
regularly announcing new pricing initiatives.
Recently, BPC increased its Asian potash prices
to $500/tonne CFR effective immediately while
Canpotex raised potash prices in Japan for
1H08 by $120/ton FOB versus 1H07.
The
momentum in potash pricing will be contingent
on the current 2008 Chinese potash negotiations
as it is the largest potash importer, representing
approximately 20% of the global potash market.
Anything
less than a price increase of $120/tonne CFR
y-o-y would be viewed as a disappointment.
Phosphate:
Tight phosphate market conditions combined
with rising feedstock phosphate rock and sulphur
prices are pushing prices higher. Producers
are virtually sold out for the year and expectations
are that US phosphate market will be short
again in 2008. US export phosphate prices
continue to surge forward. Phoschem’s
new contract with an Indian buyer at an estimated
$570- $580/tonne FOB will help set the floor
for phosphate pricing.
Nitrogen:
Urea prices have reached record levels driven
by strong demand globally, especially from
India, Europe and Latin America. With international
prices surging upward, US prices looked to
play catch up towards the end of the year
as buyers tried to secure product for January/February
2008. With NOLA prices reacting late to the
international price movement though, the US
could find itself short of product in 1Q08.
With urea supply/demand fundamentals expected
to stay tight through to next year.
Risks:
Key risks include the natural volatility of
the agricultural markets and weather uncertainties.
Earnings can be impaired by poor weather conditions,
which can cause a reduction in fertilizer
application rates; higher natural gas prices,
which increase costs; and fluctuations in
the volume of international purchases.
* United Agri
Products is the largest independent distributor
of agricultural inputs and professional non-crop
products in the United States and Canada.
UAP markets a comprehensive line of products
including chemicals, fertilizer, and seed
to farmers, commercial growers and regional
dealers
