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Q2 EBITDA beats consensus Yara reported Q2 EBITDA of USD1.475bn, c9% ahead of consensus expectations. The beat looks to have been driven by outperformance on energy costs. Management mentioned on the call that its realized gas costs had become slightly decoupled from benchmarks due to a shifting mix in sourcing. Pricing contributed to a sizeable tailwind, as expected. Deliveries declined 21% with farmers said to have deferred purchase due to high prices, especially in Europe. FCF was slightly below expectations although leverage continued to fall. Production cuts announced Yara announced that c1.3m tonnes of ammonia and 1.7m tonnes of finished products are currently curtailed due to elevated European gas prices. The decision wasn''t terribly surprising with other nitrogen producers having already cut European production. However, with spot margins negative on urea/ ammonia and just breaking even on most nitrate products, we think risks around further production cuts are high. Dividend commentary may lead to false hope With leverage continuing to trend below Yara''s target range (c0.8x LTM vs 1.5-2x), management indicated it will consider further capital returns during Q3. We think speculation around a special dividend/ buyback may be premature, however. While Yara has balance sheet headroom, macro and energy price volatility may take precedence in management''s decision-making process. Retain Underperform rating We cut our EBITDA estimates by an average of 3% for FY22/23 and we remain c17% below consensus expectations for the same period. Our price target falls to NOK400 from NOK405. We retain our Underperform rating on the shares owing to our view that European nitrogen margins will remain under pressure.
Yara International ASA Yara International ASA
Yara reported consensus-beating Q2 sales (beat to consensus: +1.7%) and profitability figures (operating income: +9.5%). The strong profitability increase was mainly fostered by the higher sales prices as production volumes suffered from lower ammonia production. Once again, management guided for higher gas prices, based on the crucial assumption of if it is available, especially in Europe. Reported figures broadly confirmed our view on the company, but it is a bet on quite normal gas flows in Europe.
Q2 adj. EBITDA of USD 1,475m (Arctic: USD 1,536m, Cons.: USD 1,388m) Considers further cash distributions in relation to Q3 results Energy cost guiding above our expectation Estimates holding up but with volume uncertainty due to curtailments
Yara’s Q2 results are due 19 July and we expect an EBITDA of USD 1,521m (old: USD 1,304m) – 16% above consensus. Based on large price spreads between regions, we estimate a Q2 EBITDA range of USD 1,350-1,700m. We have made minor full-year estimate changes in USD while in NOK, EPS is revised +8%/+17% for 2022-23. We stick to our Buy rating while raising our TP to NOK 525 (500) and believe Yara’s balance sheet should support additional cash distributions.
Yara’s very profitable start came on the back of significant price increases, whereas sales volumes were subdued due to farmers’ reluctance to buy expensive fertilizer. The situation might have eased had Gazprom not announced that it was stopping gas transport to some European countries. This might additionally tighten the European nitrogen market helping Yara to cope with higher gas costs. The reported figures slightly missed consensus expectations for the top line (-1.2%), whereas operating income was +20% ahead of consensus.
EBITDA beats consensus on strong pricing Yara reported Q1 2022 EBITDA of USD1.35bn, 19% ahead of consensus expectations. The beat was driven largely by pricing realizations while gas headwinds were largely in line. Volumes were below expectations and down c11% y/y, driven mainly by lower European deliveries. This was attributed to demand destruction with farmers hesitant to make purchases in the current pricing environment. The beat on EPS was much more significant (+32%) owing to USD223m net currency translation gain. FCF conversion under pressure from working capital but leverage remains in check Free cash flows came in at USD135m compared to our forecast of USD267m and USD368m last year. This left FCF conversion at c10%, down from c63% in Q1 2021. As was the case during H2 2021, FCF was pressured by sizeable outflows in working capital due to the steep increase in raw material inflation. We expect FCF to remain under pressure during 2022 despite Yara generating near record levels of EBITDA with capex set to increase during H2. Potash sourcing and demand destruction remain key debates Management was confident that it can navigate any shortages in potash and avoid production cuts in NPKs following its decision to stop sourcing from Russia and Belarus. Demand was also a key point of focus with European deliveries having declined 24% in Q1. Yara were rather upfront in ascribing volume weakness to demand destruction and appears to be the most clear indication to date from the fertiliser names in our coverage that this risk is starting to come to fruition. Estimate changes We increase our EBITDA estimates by c2% on average across FY22/23/24. This partly relates to Yara''s Q1 beat, along with smaller upgrades to H2 2022. Our price target remains unchanged at NOK425 and we retain our Underperform rating on the shares.
The Q1 results were strong and Yara’s business model has proven robust in a volatile market. Although nitrogen prices tend to trend seasonally lower during H1, we believe a relatively firm urea market and prospects for additional dividends will provide downside support. We upgrade to Buy (Hold) while we stick to our NOK 500 TP as we have made minor estimate changes in this update, higher energy prices once again offset by higher end product prices.
Q1 adj. EBITDA of USD 1,346m (Arctic: USD 1,222m, Cons.: USD 1,135m) Energy cost guiding above our expectation 2022 CapEx guiding of USD 1.5bn reiterated Estimates holding up and NIBD/EBITDA below target
Yara will release its Q1 results on 27 April and we expect an EBITDA of USD 1,211m (previously USD 1,277m) vs consensus at USD 1,119m. Although lower EU gas prices will likely send nitrogen prices lower (reflected in our estimates), we still believe dividends and a relatively firm urea market will provide downside support. We stick to our Hold recommendation and NOK 500 target price in this update.
Curtails ammonia/urea production in Italy and France European gas prices imply urea will need to move higher Low earnings visibility
Q4 EBITDA misses by 24% on longer than expected time lags Yara reported Q4 adj EBITDA of USD765m, c24% below sellside expectations. Coming in to results there was heightened uncertainty around Q4 pricing realizations, and this turned out to be justified. With farmers having purchased volumes towards the beginning of the quarter, Yara were unable to fully capture the sharp upswing in prices that occurred during November and December. As a result, FCF was negative for the second quarter in a row. Management also announced a NOK30 ordinary dividend; while expectations for a special dividend / buyback did not materialise, we do not rule this out as a possibility during H1. Pricing dynamic remains the most significant delta for Q1 Yara indicated that it realized nitrate and urea prices at a 2-month lag during Q4 vs a typical 1-month lag, resulting in a cUSD480m impact to EBITDA. Management also highlighted soft demand during December and January. With demand starting rise in Europe, we do not see the same level of volatility around realized prices materialising during Q1. That said, urea prices have declined by c20% ytd which may create a risk that Yara is faced with lower-than-expected pricing as demand remerges. EBITDA forecasts unchanged; we are largely in line with H1 cons. but below on H2 Our adj EBITDA estimates remain largely unchanged for FY22/23. For FY22, we expect tightness in the nitrogen market to persist during H1 with the cost curve still elevated and a backdrop of strong Ag demand. We forecast cUSD1bn for Q1 with pricing tailwinds significantly offsetting higher gas cost. However, our H2 estimates sit c25% below consensus on the expectation that pricing comes under pressure as supply starts to come back to the market and the cost curve shifts downwards. We also forecast rising cost pressures from overhead inflation during the year. We retain our Underperform rating with a price target of NOK410.
Yara’s FY figures were strong, but EBITDA followed the top line more distantly than expected (miss to consensus top line: -2.4%; EBITDA: -11%). EBITDA’s +26% increase was held back by skyrocketing gas prices as well as by higher impairments. On a quarterly adjusted basis, the picture looks more favourable as higher sales prices outweighed the extremely high energy costs in Q4. In our view, 2022 will be quite a profitable year despite the to-be-expected declining gas prices, if the Russia-Ukraine tensions do not fire up.
Despite record high gas prices, estimates have been raised significantly on the back of firm nitrogen prices, particularly CAN. Yara will release its Q4 results on 8 February and we expect an EBITDA (YAR def.) of USD 1,011m vs consensus at USD 737m. There is high uncertainty however over the figures due to low visibility on NPK margins and volumes. We upgrade the stock to Hold (Sell) and believe prospects for higher dividends will provide downside support.
Yara did better than the street had expected (top line: +5.1%; EBITDA: +2.5%), but that was the past. Central questions in today’s call were around the impact of the currently ongoing curtailment of its European production capacities and farmers’ willingness to accept continuously increasing prices. Management remained quite vague in this regard due to its conservatism, but clearly flagged that nitrogen is crucial for farmers to produce certain yields.
Q3: EBITDA beat, FCF weak Yara reported Q3 adj EBITDA of USD765m, 4% ahead of consensus. Underlying dynamics did not surprise with pricing offsetting natural gas headwinds. Volumes were a small headwind with management indicating that farmers are hesitant to make purchases this early on in the season. Despite the outperformance on earnings, FCF slipped below expectations. This was driven by a sizeable working capital outflow with inventories in particular coming in higher than expected. It''s all about ammonia Unsurprisingly a lot of the focus on the call centred upon Yara''s curtailed ammonia capacity in light of the European gas crisis. As things stand it looks like Yara is procuring enough ammonia to maintain downstream production while management does not envisage any bottlenecks. However, with the ammonia market becoming increasingly tight, we still see potential risks to finished product production. Net pricing for Q4 looking incrementally better Yara''s guidance for a USD850m natural gas headwind for Q4 was below our estimate of USD1bn. We note that the company''s guidance was based on production from Q420. When adjusting for lower gas purchases and factoring in the cost of purchasing ammonia externally, we come to a total headwind (i.e energy and purchased ammonia) close to our original estimate. Expect continued weakness in FCF during Q4 We expect another quarter of negative FCF during Q4. Yara''s new capex guidance (USD1.1bn), implies a significant sequential step up in expenditure, while inventory investment will see little reversal due to higher gas and product prices. Hence, we see little scope for incremental earnings upgrades being converted in to FCF. Our EBITDA forecasts increase by c3% for FY21/22, relating mainly to the Q3 beat. We maintain our Underperform rating at a price target of NOK380.
Yara reported a Q3/21 EBITDA excluding special items of USD 765m – slightly above our USD 738m forecast. Q3 was however not impacted by the recent surge in the European gas price, and we still see high uncertainty for Q4/21 and Q1/22. We have only made minor estimate changes in this update but see low earnings visibility and high volatility. We stick to our Sell rating as well as our NOK 400 target price.
EBITDA ex SI of USD 765m (Arctic: USD 738m, Cons.: USD 732m) Energy cost guiding above expectations, still high uncertainty CapEx guiding reiterated Low earnings transparency short to medium-term, we stick to Sell
Yara and CF Industries, two leading ammonia producers, have announced they are to curtail quite a high share of their European production. This comes after the soaring gas prices, which can not be passed on to the farmers. The lower European production comes with the impact of Hurricane Ida. The heavy winds had caused severe damage and sudden shutdowns in the Mexican Gulf region, so the global supply balance has been hit. It looks to us as if this is becoming another perfect storm.
Yara will release its Q3/21 results on 20 October and we now expect an EBITDA of USD 738m (762). The significant spike in the European gas price challenges Yara’s earnings over the next 4-5 months. Although one could choose to look beyond this, there could be further downside risk. Key uncertainties such as weather will be crucial for their most important cost component going forward. We stick to our Sell rating and lower our TP to NOK 400 (430).
Small miss on Q2 EBITDA Yara released Q2 results last week with adj EBITDA coming in c1% below consensus expectations. As expected, y/y EBITDA growth of 32% was driven by pricing tailwinds which offset higher energy costs. Volumes contributed towards a relatively small headwind due to strong pre buying earlier in the European application season. Yara also booked a cUSD51m increase in fixed costs although this appears to have been due to phasing. Leverage continues to fall; NOK20 special dividend announced Yara generated strong FCF during the quarter at USD916m, helped by significant prepayments (cUSD600m) ahead of the Brazilian planting season. As a result, net debt /EBTIDA fell to c1x (LTM) and Yara announced a special dividend of NOK20 to be paid during Q3. While the additional dividend did not come as a major surprise, Yara did not rule making further extraordinary returns should leverage remain below 2x. Little scope for further upgrades We think Yara''s relatively in-line set of Q2 results may signal a halt in the upgrade cycle. While nitrogen prices remain at elevated levels, further momentum looks unlikely. Meanwhile, European natural gas prices continue to increase, placing downward pressure on spreads. NPK premiums will see some sequential improvement into H2, although this may be held back by potash prices which continue to increase. Current consensus is looking for EBITDA of cUSD2.7bn for FY21 and minimal normalisation during FY22; with Yara''s shares still close to all-time highs, we believe risk is firmly skewed to the downside. Changes to estimates Our FY21/22/23 adj EBITDA estimates remain relatively unchanged. As a result, our price target is unchanged at NOK395 and we retain our Underperform rating. We are c14% below FY22 consensus EBITDA estimates. Yara''s shares trade on c8.2x FY22 EV/EBITDA.
Yara reported a strong set of figures primarily driven by the implemented higher sales prices beating our cautious expectations, whereas consensus was more moderately beaten (top-line: 6; profitability: +2). In our view, the price increases overcompensated for the higher energy costs and weighed on volumes. However, the times of increasing prices is not over as management guides for higher forward prices until the year-end.
EBITDA excl SI of USD 775m (Arctic: USD 812m, Cons.: USD 784m) Proposes an additional NOK 20 DPS for Q3/21 distribution Energy cost guiding above current expectations, CapEx guiding reiterated Positive estimate revision likely to continue
Yara will release its Q2/21 results on 16 July. We have only fine-tuned our quarterly estimates, but have implemented significantly higher price assumptions for H2/21 and also raised our 2022 assumptions. These revisions have partly been offset by higher energy cost assumptions. Although the market is expected to remain firm short-term, our valuation focus is more long-term oriented, and we hence stick to our Sell rating, while raising our TP to NOK 430 (400).
Yara shares have outperformed peers CF Industries and OCI by c10% since mid-January. Nitrogen spreads are likely to come under increasing near term pressure, while the mid-term S/D picture looks less than positive. As a result, we sit c10% below FY21-23 consensus EBITDA. We downgrade the shares to Underperform with a new price target of NOK373 (from NOK395). Reaching a peak Yara shares have risen c14% since mid-January and outperformed its closest nitrogen fertiliser peers by c10%. Arguably this outperformance has been justified with the market having previously taken a sceptical view on how quickly nitrogen prices could keep up pace with rising gas costs. A tight market has resulted in spreads remaining elevated, and as a result, EBITDA estimates have risen c8% since mid-January. With nitrogen pricing starting to show signs of weakness, and gas costs remaining elevated, we believe spreads will start to weaken. This suggests that Q2 could represent a peak in margins, leaving further upgrades unlikely. Q1 miss signals slowing momentum in the upgrade cycle Yara reported a 2% miss on Q1 EBITDA, driven by lower volumes and delayed pricing tailwinds. We adjust our earnings estimates to reflect higher nitrogen pricing during Q1 and lagged increases during Q2. Our FY21 EBITDA estimates remain unchanged. However, we assume a more pronounced compression of nitrogen spreads into H2 and 2022, and cut our FY22/23 EBITDA estimates by c3.5% across both years. How do we differ from consensus? We forecast FY21 EBITDA close to USD2.39bn which is c6% below current consensus. This reflects our view that European nitrogen spreads will normalise during H2 as new capacity ramps and raw material costs remain elevated. For FY22/23 we sit c12% below consensus reflecting our bearish view on demand / supply fundamentals in nitrogen. This also leaves us c150bps below consensus margin expectations next year.
Yara’s Q1/21 results fell short of our expectations, and firmer energy costs, unfavourable FX as well as prospects for softer prices triggered a negative earnings revision of 15% for 2021. Although we only fine-tune our 2022 estimates, we find valuation unattractive at current levels. Our estimates are currently 28% and 21% below consensus for 2021 and 2022 respectively, and we lower our TP to NOK 400 (435) and downgrade the stock to Sell (Hold).
The world lusts for nitrogen-containing fertilisers as availability dominates pricing negotiations with ammonia prices flying up since the beginning of Q1. Being part of the story, Yara was one of the beneficiaries despite volume’s tiny performance. The higher sales prices could be introduced also because of the sharp (!) increase in natural gas prices yoy and sequentially. Our not too ambitious expectations were beaten, especially on the profitability level, but consensus was missed on all lines.
EBITDA ex SI of USD 585m (Arctic: USD632m, Cons.: USD 599m) Energy cost guiding for Q2 and Q3 above current expectations CapEx guiding reiterated We expect to lower our 2021 estimates
Yara will release its Q1/21 results on 23 April, we have only fine-tuned our estimates in advance, and now expect an EBITDA (Yara definition) of UD 632m (624). Urea prices remain firm following a strong YTD rally, but our base case is still a normalization during H2/21. We hence stick to our Hold rating, while raising our target price to NOK 435 (425) in order to discount the current strong earnings momentum.
4Q dynamics largely unsurprising Yara reported 4Q20 adj. EBITDA of USD511m, c4.5% ahead of sell-side expectations. Pricing tailwinds were broadly offset by higher gas costs. However, volumes did appear to surprise on the upside, contributing to a USD37m tailwind or c8% y/y. This was driven by higher deliveries in Crop Nutrition (c+8%) which offset declines in Industrial solutions (c-7%). The shares reacted positively on the day. However, we were not surprised to see profit taking afterwards with the shares having hit 5-year highs. Expect pricing to offset gas costs in H1, estimates remain broadly unchanged Spot nitrogen pricing continues to run away and provide an offset to inflationary natural gas prices. As we described in our recent sector note, AGROCHEMICALS: Fertilisers: How to Play the Field, nitrogen fundamentals will likely remain robust during H1 and start to deteriorate as the year progresses. We believe this should allow Yara to just about offset cost inflation during 2021 (we forecast a cUSD580m gas headwind for the full year). Factoring in temporary fixed cost increases of USD100m along with higher H1 pricing, our EBITDA estimates do not move materially, and remain in line with pre results consensus. We anticipate that the shares will also continue to receive support from Yara''s falling leverage (we forecast c1.7x net debt/ EBITDA at ''21 y/e) and continued scope for special shareholder returns. Our price target increases to NOK380 and we remain Neutral rated on the shares. We continue to prefer Nutrien and Mosaic in fertilisers. Green ammonia takes centre stage Despite recent volatility in nitrogen prices, the key focus on Yara remains on its role in decarbonisation. At 4Q results, management announced that it will be creating a new clean ammonia segment for its green and blue ammonia production. That said, a lot of questions remain unanswered, namely the capex and returns profile of future green ammonia investments. The...
Yara International ASA
Yara’s Q4/20 results were slightly above expectations, while the proposed DPS of NOK 20 exceeded our expectations. We have implemented updated energy guiding and raised our price assumptions – particularly for H1/21, following the recent strong price momentum. We have implemented more modest price increases for H2/21 onwards. The strength and length of the current momentum is key, and we stick to our Hold rating for now but raise our TP to NOK 425 (400).
Yara reported a good set of figures, beating our more moderate view in 2020 as we has factored in a stronger negative from higher energy prices. The latter has been counteracted by higher volumes and better pricing momentum in Q4. In the light of the fading effect from low energy prices, the provided outlook and already signed contracts will help profitability to be maintained in the first months of 2021, at a minimum. Consensus was not met.
EBITDA excl. SI of USD 511m (Arctic: USD 495m, Cons.: USD 489m) Proposes ordinary DPS of NOK 20 (Arctic: NOK 17.0, Cons.: NOK 14.4) Energy cost guiding for Q1 and Q2 below expectations We expect to raise our estimates following urea price momentum
Yara will release its Q4 results on 9 February, and we expect an EBITDA (Yara definition) of USD 495m (499). We have implemented firmer European gas prices and updated FX assumptions, representing headwind for earnings. This has been partly offset by higher price assumptions. Following our estimate revisions, we see limited scope for raising our NOK TP, and we hence downgrade the stock to Hold (Buy).
Yara looks to increase its footprint in Green Ammonia Yara hosted a virtual investor seminar focusing on its role in both carbon mitigation and the market for green ammonia. The company announced its intention to produce c500kt of green ammonia at its Porsgrunn facility in Norway. If this project comes to fruition, it will be the most significant in terms of scale within the fertiliser sector to date, with Yara having already announced smaller initiatives at its Pilbara and Sluiskil facilities. As one could imagine, capex for the project was a key point of focus. Yara indicated that it will seek funding from the Norwegian government for the Porsgrunn project, with levelised costs of green ammonia production still 2-4x that of conventional methods. Management kept its near term capex estimates unchanged which should help foster confidence that capital discipline will remain a priority through the path to decarbonisation. New EBITDA ambitions announced for 2025 Management also outlined new ambitions to generate cUSD300-600m of EBITDA improvement by 2025 (c20% of LTM EBITDA). This comes in addition to the USD350m of additional improvements announced last year, which should still be realised by 2023. The plan focuses on generating USD1.7bn of new sales and ''shifting'' a portion of existing revenues to a direct to farm online platform. As part of these new sales, Yara aims to launch a carbon scheme during 2021 in which it hopes to monetise credits freed up through helping farmers reduce emissions. We note that the company''s new EBITDA ambitions will likely be back end weighted. In comparison to the company''s previous improvement plans, we feel this one may require more proof in the pudding, with new revenue initiatives still very much in their infancy. Adjusting estimates for recent pricing trends We lower our 2020/21 EBITDA estimates by c1% owing to higher natural gas prices during FY21 and modestly improved pricing expectations for 4Q20....
Targets new USD 300-600m EBITDA by 2025 2020-21 CapEx unchanged, 2022 higher than expected Unchanged financial targets Plans for 500’t green ammonia plant in Norway
Yara reported an EBITDA (Yara def.) ex special items of USD 558m – in line with our expectations. The board proposed an extraordinary dividend of NOK 18 per share, reflecting the Qafco divestment and to be paid in Q4/20. We have kept our price assumptions unchanged in this update, and consequently, we have only fine-tuned our estimates. We still expect share buy-backs and EO dividends will provide downside support, and we reiterate our BUY rating and TP.
... Yara lifted FCF as well as ROIC to new levels. Operating figures were impacted by various effects, the most dominant one being lower sales prices. The impact of lower energy prices started to level out earlier than expected. This was not well explained as management shared future gas prices. Incidentally, AlphaValue had removed the share from the active portfolio just some days ago as investors had bought more into risk.
EBITDA (Yara def.) ex of USD 558m (Arctic: USD 541m, Cons.: USD 656m) Proposes an additional NOK 18 per share in extraordinary dividend Energy cost guiding broadly in line with expectations Minor estimate changes expected, but EO dividend supportive
