Norwegian chemical company Yara International Asa (OSE: YAR) held its capital markets day on Tuesday. Nitrogen fertilizers are Yara’s main product and farmer margins are up as global grain consumption is increasing at a rate that is making it hard for production to keep up to speed. Therefore Yara is still experiencing strong fertilizer demand. For the past year the company has been delivering record results.
Yara foresees continued megatrends of income growth, globalization and urbanizations and quotes FAO saying that world food production must be up by 70% within the next 40 years. The company plans to build a lasting competitive advantage rooted in solving the challenges posed by these issues. Most of the near term growth opportunities for Yara lie in the Southern hemisphere. Yara also feels that if current grain prices hold, there should be rebound in European deliveries in Q1 2012.
Yara presented some scenarios on various fertilizer and energy prices. The company used the last four (extremely strong) quarters as a base scenario and presented following scenarios for comparison: 1. Supply-driven market with China as the floor price 2. Average prices of last five years and 3. Demand-driven market with 150 USD per ton urea margin. The EPS in all the scenarios fell between 28 and 55 NOK. The presentation material has sensitivities and such for comparison.
The company foresees to maintain a payout ratio above 40% (dividend + share buy-backs) over the business cycle and aims for profitable growth through selective acquisitions. Yara’s stock, like plenty of its peers, has retreated close to 30% in 2011, but gained more than 7% today to close at around 245 NOK per share.
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