Akron (MCX: AKRN) — one of the leading producers of mineral fertilizers not only in Russia, but all over the world. It is a vertically integrated holding. The main enterprise of the group of companies is located in Veliky Novgorod, although the office is located in Moscow.
About company
Shares of the group of companies are traded on the Moscow Exchange in rubles and on the London Stock Exchange in US dollars under the ticker AKRN. They show positive medium-term dynamics.: for the latest 12 months on the Moscow Exchange, they grew by 47%. The initial placement of securities was carried out at the Moscow Exchange 11 October 2006, securities are at the second level of listing, they have average liquidity.
History of the group of companies. Novgorod Chemical Plant, founded in 1961, received the first product - methanol - in 1967. In 1975, the production association "Azot" was formed on its basis.. These are the predecessors of the Akron Novgorod plant - the key production facility of the group.
In 1969, the production of ammonia and ammonia water began. This was followed by urea, urea-formaldehyde resins, additional ammonia production, ammonium nitrate. After that, the development of the Dorogobuzh chemical plant, the second largest enterprise, began., in the future, which formed the group of PJSC "Acron", now it is called PJSC "Dorogobuzh". Dorogobuzh also began to produce ammonia and nitrogen-phosphorus-potassium fertilizers, and ammonium nitrate - in Akron. During the years of perestroika, Akron began producing acetylene, acetaldehyde and acetic acid.
In the early nineties, both enterprises were privatized and merged into a single structure.. By 1997, Acron had built a distribution network in major agricultural regions and was named the winner of the Best Russian Companies competition. In 2002, the production of liquid carbon dioxide began at Dorogobuzh.
In 1998, the Akron-Trans railway carrier entered the group of companies.. In the following years, there was an expansion of the range of industrial fertilizers.. Expansion of the group to the Chinese market continued, she entered the mining market, to the logistics market and ultimately to stock market.
After 2010, the group entered the Polish market and expanded its mining operations. Geological exploration began in Canada. In 2015, Dorogobuzh became a public joint stock company. The following year, construction began on its own railway in the Murmansk region., new production of rare earth metals in Veliky Novgorod.
In 2017, state awards were presented to the key figures of the group, the group entered the markets of the Rostov region and France, as well as to the agro-industrial market of the Nizhny Novgorod region, continued expansion of production.
In 2018, the group entered the markets of Latin America, railway line was put into operation. The following year, the group took part in several exhibitions and received awards.. At the same time, a deposit of potassium-magnesium salts was actively developed in the Perm Territory.. In 2020, despite the economic crisis and the pandemic, additional production capacities were launched at the main enterprises.
Composition of the group of companies. The main holding companies are Acron and Dorogobuzh. The group has business not only in the Russian Federation, but also in other states. Expansion into emerging and frontier economies is a positive factor for investors, as such economies emerge faster from the pandemic crisis, than developed.
Composition of Acron Group
| Activity profile | Holding share in capital | |
|---|---|---|
| PAO "Akron" | holding company, chemical production | 100% |
| JSC "SZFK" | Phosphate mining | 100% |
| North Atlantic Potash Inc. | Potassium mining | 100% |
| AS DBT | Port terminals | 100% |
| Andrex LLC | Port terminal | 100% |
| JSC "Agronova" | Distribution in Russia | 100% |
| Beijing Yong Sheng | Distribution in China | 100% |
| Acron USA Inc. | Distribution in the USA | 100% |
| Acron Switzerland AG | Distribution in Switzerland | 100% |
| Acron Brazil Ltd. | Distribution in Brazil | 100% |
| Acron Argentina S.R.L. | Distribution in Argentina | 100% |
| Acron Colombia SAS | Distribution in Colombia | 100% |
| LLC "NPC" Akron Engineering "» | Engineering | 100% |
| LLC "Fertility" | Agriculture | 100% |
| PAO Dorogobuzh | Chemical production | 96,7% |
| VKK JSC | Potassium mining | 50% |
| Grupa Azoty | Fertilizer production in Poland | 19,8% |
Akron shareholders and key figures
| JSC Akron Group | 55,00% |
| Redbrik Investments S. and. p. l. | 30,98% |
| PAO "Akron" (treasury account) | 9,32% |
| NCO JSC "National Settlement Depository" | 2,52% |
Two key figures in the company can be distinguished: this is the main shareholder of the group Vyacheslav Kantor, which, through the above companies, owns the majority of its shares, and CEO Vladimir Kunitsky, who has held this position since 2011, has been with the company since 1983.
Geographic structure of sales. The largest share of revenue comes from Latin America, and the same region showed the largest increase in the first half of 2021 compared to the same period of the previous year.
The percentage of revenue from sales in the Russian Federation is on average among the regions, and in terms of revenue growth in the Russian Federation, it ranks last. Orientation towards Latin America reflects the overall external economic picture in Russia. Since the countries of the region are experiencing an increase in exports of agricultural products and, respectively, its production, a similar detail of the group's revenue structure can be considered its strong point: this will work for the long term as well..
The question of the relatively low share of Russia can be assessed as neutral: On the one side, she's not that low, so that we can talk about complete inattention to the Russian market, On the other hand, weak sales performance is well in line with poor industry performance in 1H 2021. In such a situation, the geographical diversification of the group looks like a good risk mitigation factor.
Acron's revenue by country and region, million rubles
| Revenue in 1H2021 | Revenue in 1H2020 | The change | Share in 2021 | |
|---|---|---|---|---|
| Latin America | 25 844 | 13 882 | 86,17% | 30,06% |
| the Russian Federation | 14 457 | 11 870 | 21,79% | 16,81% |
| USA and Canada | 14 333 | 8456 | 69,50% | 16,67% |
| Asia (not including China) | 10 048 | 7436 | 35,13% | 11,69% |
| EU countries | 8936 | 6838 | 30,68% | 10,39% |
| PRC | 4792 | 2938 | 63,10% | 5,57% |
| CIS | 1052 | 863 | 21,90% | 1,22% |
| Other regions | 6520 | 4149 | 57,15% | 7,58% |
| Total | 85 982 | 56 432 | 52,36% | 100,00% |
What he earns
Products and services. The largest share of products is ammonia, and porous and technical ammonium nitrate showed the largest increase. The increase in ammonia production was quite in line with global market forecasts, where an explosive growth in demand may occur in the near future - ammonia can become an alternative to natural gas.
Ammonia prices now seen rebounding to pre-Covid levels amid supply chain disruption, crop price rally, shortages in the US after shutdowns of chemical plants in Texas and a number of other factors. Such dynamics of production can be considered a strong factor in favor of the investment attractiveness of the group.
Dynamics of production, in thousand tons
| 2016 | 2017 | 2018 | 2019 | 2020 | Increase for 2020 | Share in 2020 | |
|---|---|---|---|---|---|---|---|
| Ammonia | 2201 | 2595 | 2616 | 2583 | 2729 | 5,65% | 21,92% |
| Ammonium nitrate | 1748 | 1975 | 1798 | 1951 | 2430 | 24,55% | 19,52% |
| NPK | 1878 | 2219 | 2329 | 1892 | 2236 | 18,18% | 17,96% |
| Apatite concentrate | 1142 | 1167 | 1214 | 1084 | 1182 | 9,04% | 9,50% |
| Urea | 762 | 882 | 1015 | 1253 | 1180 | −5,83% | 9,48% |
| Urea-ammonia mixture (KAS) | 1125 | 950 | 1422 | 1729 | 1096 | −36,61% | 8,81% |
| Calcium carbonate | 449 | 514 | 473 | 466 | 515 | 10,52% | 4,14% |
| Porous and technical ammonium nitrate | 172 | 132 | 170 | 189 | 318 | 68,25% | 2,55% |
| Urea-formaldehyde resins (KFS) | 162 | 181 | 193 | 206 | 174 | −15,53% | 1,40% |
| Formalin | 143 | 162 | 174 | 173 | 151 | −12,72% | 1,21% |
| Industrial urea | 60 | 72 | 119 | 131 | 140 | 6,87% | 1,12% |
| Mixed fertilizers | 75 | 675 | 190 | 133 | 136 | 2,26% | 1,09% |
| Methanol | 80 | 102 | 108 | 106 | 98 | −7,55% | 0,79% |
| Liquid carbon dioxide | 54 | 56 | 55 | 48 | 55 | 14,58% | 0,44% |
| Argon | 6 | 6 | 7 | 7 | 7 | 0,00% | 0,06% |
| Total | 10 057 | 11 688 | 11 883 | 11 951 | 12 447 | 4,15% | 100,00% |
EBITDA structure. In terms of profitability, Acron's products account for the main share, Dorogobuzh is predictably in second place with a significant margin. In 2020, obviously against the backdrop of a global decline in fertilizer prices due to the coronavirus, as well as increased transport costs due to covid restrictions, the fall showed the profitability of "Acron", and even the growth in the profitability of Dorogobuzh did not save from a slight decrease in EBITDA. The increase in Dorogobuzh's profitability can be attributed to the increase in global demand for ammonia after, how the first peak of coronavirus was passed.
Acron EBITDA structure, million rubles
| 2020 | 2019 | Growth | share | |
|---|---|---|---|---|
| Akron | 20 110 | 26 944 | −25,36% | 55,38% |
| Dorogobuzh | 6144 | 3922 | 56,65% | 16,92% |
| Trading activities | 4451 | 1190 | 274,03% | 12,26% |
| NWPC production | 2948 | 2543 | 15,93% | 8,12% |
| Logistics | 951 | 2221 | −57,18% | 2,62% |
| Other | 707 | −71 | −1095,77% | 1,95% |
| Total | 36 311 | 36 749 | −1,19% | 100,00% |
Financial indicators. In 2020, there was a drop in the net profit of the group of companies by several times, but this can be attributed not to poor operating results and not even to increased logistics costs, and with financial expenses - in particular, with buyback of own shares.
But in the first half of 2021, all indicators increased, and the net profit increased by more than 3000%. This gives confidence in the continued growth of shares., especially against the backdrop of ongoing buybacks.
Financial performance of Acron by years, million rubles
| 2016 | 2017 | 2018 | 2019 | 2020 | |
|---|---|---|---|---|---|
| Revenue | 89 359 | 94 342 | 108 062 | 114 835 | 119 864 |
| EBITDA | 29 856 | 29 817 | 37 053 | 35 749 | 35311 |
| EBITDA margin | 33% | 32% | 34% | 31% | 29% |
| Net profit | 25 525 | 14 260 | 13 318 | 24 786 | 3836 |
Financial performance of Acron by half-year, million rubles
| 1п2021 | 1п2020 | The change | |
|---|---|---|---|
| EBITDA | 40 271 | 15 308 | 163,07% |
| EBITDA margin | 47% | 27% | 74,07% |
| Revenue | 85 982 | 56 432 | 52,36% |
| Net profit | 29 678 | −986 | 3109,94% |
Plans
At the moment, the group adheres to the development strategy until 2025, adopted in 2017. The strategy includes the further construction and expansion of the production capacity of the Talitsky Potash GOK, which has been under construction since 2018.
The company plans to become one of the largest producers of NPK fertilizers in the world by investing in the construction of this production facility.. In the long term, the implementation of the project can become a significant support for the company's shares. Now there is an upward trend in NPK prices due to an increase in energy prices.
Capital expenditures for the construction of the mining and processing plant were increased this year. This is an adequate response to positive changes in the financial performance of the group of companies.
It is planned to increase the production of carbamide at existing sites, ammonium nitrate and ammonia, which is logical given the increase in global demand and prices for fertilizers. And this factor will be long-term support for Acron's share price.. It is also planned to build a new production of calcium nitrate.. This fertilizer is the main one in agriculture in Western Europe., at the same time there are forecasts, that ammonium nitrate will give way to calcium in European countries, since the latter does not acidify the earth so much.
Risks
The only risk is competition with global fertilizer producers. This year, carbamide production plants were launched in Nigeria with a total capacity of more than 4 million tons per year.. In 2022, the competitive situation will worsen due to the prospect of solving the logistical problems of one of the largest African chemical companies Dangote and commissioning additional production capacity. Also in 2022, an increase in export supplies of urea by the Nigerian company Indorama is expected due to the launch of a new line.
Despite, that so far Akron has not been represented on the African continent, these producers could theoretically compete with the group in those regions, where does she sell products: in Africa, agriculture is carried out mainly in the traditional way, and local chemical companies, Most likely, export oriented.
2022 the year could become a crisis for Acron in terms of international competition. In addition to the release of a significant amount of African products to the market, Expected, that new urea plants will be commissioned in India and Brunei. Volumes will also increase due to the commissioning of new production facilities and the supply of ammonia and phosphates to the world market from Saudi Arabia.
As we see, the main risks are associated with competition in the global urea market. The group of companies increases its production, but this does not reduce the risk of competition, it remains serious - it should have taken a less competitive niche in export deliveries. Therefore, the risk of international competition is certainly, weak point of "Akron".
conclusions
Acron is a strong and promising business with low risks. The risk of competition in the global urea market can be assessed as low, since it occupies a small share in the production of the group even with a significant increase in its production.
Such risks, as political or reputational, can be reduced to zero, since the company has existed since Soviet times, is one of the city-forming in Veliky Novgorod. Dubious, that the power will raise a hand against him. But even the theoretical and unlikely procedure for transferring it to state ownership is unlikely to lead to a significant drop in shares.. The enterprise is headed by strong business executives and specialists, General Director - Honored Chemist of Russia.
Strong point of the issuer, which could ensure a further rally in its stock, — ability to diversify supplies, otherwise I say, adjust to the world market conditions.
Wide geography of not only deliveries, but production can also be regarded as a successful hedging of the risks of the domestic market of the Russian Federation, especially related to a decrease in food consumption by the population in connection with a new round of coronavirus in the country. In many other countries, there is no such worsening of the situation..
You can make a conclusion, that the rally in Acron's shares will continue and for the investor they will remain attractive in the long term.
