PhosAgro Review: phosphates and complex fertilizers

Обзор «Фосагро»: фосфаты и комплексные удобрения

Phosagro (LIFE: PHOR) — the world market leader in the production and supply of complex fertilizers with phosphorus content, apatite and nepheline concentrates. In the Russian market, the group is the leader in terms of supplies of all types of fertilizers.

About company

PhosAgro shares show positive dynamics: their price has risen from 3136 P to 5644 P from the beginning of the year to 1 November 2021. They are traded on the Moscow Exchange under the ticker PHOR with 18 July 2011 and belong to the first listing level, having high liquidity.

History. Phosagro OJSC was established in 2001, in the same year it acquired shares of OJSC "Apatit", JSC "Ammophos", LLC Balakovo Mineral Fertilizers and LLC Voskresensk Mineral Fertilizers. The company quickly becomes the only monocalcium phosphate producer in Russia. Sulfuric acid production expanded in 2003. Further, PhosAgro acquired shares of Cherepovets Azot OJSC, expanded and modernized production facilities, in 2006, the production of phosphoric acid increased by almost a third. In the same year, the urea producer CJSC Agro-Cherepovets was acquired.

In 2008, the production of feed monocalcium phosphate was increased. Expansion continued in 2011, a number of other enterprises were acquired, in particular "Metakhim" and "Pikalevskaya soda". In 2013, together with Rusal, the production of fluoroaluminum was launched in Cherepovets., the agreement is valid until 2034.

Expansion to the Asian market began in the same year., was created trader in Singapore. The same trader also took up the African market.. The debut issue of Eurobonds also took place. International cooperation began to develop actively, production was launched jointly with Japan.

In 2014, international cooperation continued to expand, a loan agreement was concluded with the Japan Bank for International Cooperation, the following year, an agreement was signed with the Australian side on joint drilling and blasting operations, and also established a joint project with the Czech Republic for the production of urea.

In 2016, the company changes its organizational and legal form from OJSC to PJSC. MSCI added the company's shares to the indices for Russia and emerging markets. In 2017, additional capacities for the production of ammonia and granular urea were put into operation. New generation treatment facilities launched.

Exports to India were expanded in 2018. Regional offices were opened in the Far East and Argentina. In 2019, the development strategy of the company until 2025 was approved. A new production of apatite concentrate was opened in Volkhov. Committee on Sustainable Development was established.

Most of the enterprises of the group of companies belong to JSC "Apatit". It is the largest producer of a range of fertilizers in Europe, mainly phosphorus-containing. The company is also known for, which provides itself with most of the consumed electricity due to waste-free technologies - utilization of waste heat in the production of sulfuric acid.

Enterprises of the group of companies "PhosAgro"

Kirov branch of JSC "Apatit" Mining
JSC "Apatit" (Vologodskaya Oblast) Processing
Balakovo branch of Apatit JSC Processing
Volkhov branch of Apatit JSC Processing
LLC "Phosagro-Region" Logistics and distribution
AO «NIUIF im. Professor Y. V. Samoilov" Science and Engineering

Mining

Shareholders and key figures. Most of the company's shares are owned by two offshore companies, registered on the territory of the Republic of Cyprus, Rector of St. Petersburg Mining University Vladimir Litvinenko and family members of Phosagro CEO Andrey Guryev Jr..

The key figures of the group of companies are the athlete, politician and businessman Andrei Grigorievich Guryev and his son Andrei Andreevich Guryev, WHO HOLDS THE POSITION OF CEO.

Shareholders of PhosAgro

Adorabella AG 23,35%
Chlodwig Enterprises AG 20,31%
Vladimir Litvinenko 20,98%
Evgeniya Guryeva 4,82%
Free-float 30,54%

23,35%

Sales geography. In Russia, the company supplies products to most of the regions, with the exception of Karelia and a number of regions of the Far North with difficult conditions for plant growing. Export is carried out to all continents, except Antarctica, the company has an extensive network of foreign offices.

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The share of exports is about 70%. The export structure is dominated by Europe and South America, what can be considered the optimal solution, which can positively affect the company's share price. There is a demand in Europe for sustainable, "Green" fertilizers with a low content of heavy metals, which Phosagro specializes in. Agriculture is on the rise in South America, in particular, this region is the main producer of soybeans in the world.

The most significant increase in the first half of 2021 compared to the same period last year was shown by deliveries to North America. Such a strategy corresponds to the foreign economic situation, by the end of 2021, a record export of agricultural products from the USA is expected.

Structure of export supplies of PhosAgro, million rubles

Revenue in 1H2020 Revenue in 1H2021 Share The change
Europe 33 019 46 326 36,1326% 40,30%
South America 18 656 45 457 35,4548% 143,66%
North America 5405 13 865 10,8142% 156,52%
India 9863 7970 6,21632% −19,19%
Africa 7211 6325 4,93327% −12,29%
CIS 5428 5988 4,67043% 10,32%
Asia 2128 2280 1,77832% 7,14%
Total 81 710 128 211 100% 56,91%

What makes money

Products and services. Apatite concentrate and sulfuric acid make up the bulk of the products., going largely as a raw material for our own production of fertilizers. This is followed by DAP/MAP fertilizers, phosphate fertilizers with high environmental friendliness, currently in demand in the European Union, where strict restrictions on fertilizers are introduced. Moreover, the production results for 9 months and the first half of 2021 do not differ very much.

There is a picture in sales, adjusted for, that a significant part of the raw materials produced goes to the internal needs of the company.

Production of products for half a year, million tons

1п2020 1п2021 The change Share
Apatite concentrate 5354,2 5 257,0 −181,54% 30,93%
Sulphuric acid 3393,9 3 554,0 471,73% 20,91%
DAP/MAP 1617,1 1 655,0 234,37% 9,738%
NPK 1386,6 1 544,1 1135,87% 9,086%
Phosphoric acid 1380,6 1 420,1 286,11% 8,356%
Ammonia 1012,6 956,6 −553,03% 5,629%
Urea 843,6 837,2 −75,87% 4,926%
Nepheline Concentrate 577,1 562,4 −254,72% 3,309%
Ammonium nitrate 362,8 358,5 −118,52% 2,109%
NPS 444 314,1 −2925,68% 1,848%
MCP 202,2 202,2 0,00% 1,19%
Ammonium sulfate 151,9 138,5 −882,16% 0,815%
APP 116,7 99,3 −1491,00% 0,584%
STPP 47,6 41,6 −1260,50% 0,245%
Other 45,2 43,8 −309,73% 0,258%
PKS 40,9 10,8 −7359,41% 0,064%
Total 16 977,0 16 995,2 10,72% 100%

Production of products for 9 months, million tons

9м2020 9м2021 The change Share
Apatite concentrate 8037,4 7931,1 −1,32% 30,97%
Sulphuric acid 5136,9 5397,4 5,07% 21,08%
DAP/MAP 2388,5 2597,8 8,76% 10,15%
NPK 2123,3 2268,8 6,85% 8,86%
Phosphoric acid 2073,4 2167,0 4,51% 8,463%
Ammonia 1509,5 1412,8 −6,41% 5,517%
Urea 1263,5 1220,7 −3,39% 4,767%
Nepheline Concentrate 870,5 843,1 −3,15% 3,293%
Ammonium nitrate 505,7 504,1 −0,32% 1,969%
NPS 746,2 462,4 −38,03% 1,806%
MCP 289,2 287,1 −0,73% 1,121%
Ammonium sulfate 234,2 221,5 −5,42% 0,86%
APP 157 152,9 −2,61% 0,597%
STPP 74,7 67,1 −10,17% 0,262%
Other 66,7 61,3 −8,10% 0,239%
PKS 44 10,8 −75,45% 0,042%
Total 25 520,7 25 605,9 0,33% 100%

Sales structure. The share of product sales is also based on the results for 9 months and the first half of 2021 changed slightly. DAP / MAP and NPK dominated. DAP shipments from China and the USA decreased, and therefore the group has the opportunity to occupy a free niche. But the increase in the production and sales of urea does not cause great optimism - the prices for this fertilizer in the world markets are falling.

Sales of Phosagro products for half a year, million tons

1п2020 1п2021 The change Share
DAP/MAP 1745,6 1692,7 −3,03% 23,52%
NPK 1357,3 1418,2 4,49% 19,71%
Apatite concentrate 1581,6 1386,0 −12,37% 19,26%
Urea 911,9 934,7 2,50% 12,99%
Nepheline Concentrate 578,1 565,3 −2,21% 7,855%
Ammonium nitrate 394,4 438,9 11,28% 6,099%
NPS 419,7 309,2 −26,33% 4,297%
MCP 199,5 211,8 6,17% 2,943%
APP 109,8 104,2 −5,10% 1,448%
STPP 44,5 44,2 −0,67% 0,614%
Other 46,2 43,7 −5,41% 0,607%
Ammonium sulfate 2,6 40 1438,46% 0,556%
PKS 44,8 7,5 −83,26% 0,104%
Total 7436,0 7196,4 −3,22% 100%
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Sales of Phosagro products for 9 months, million tons

9м2020 9м2021 The change Share
DAP/MAP 2667,9 2606,7 −2,29% 24,09%
NPK 2244,0 2310,9 2,98% 21,36%
Apatite concentrate 2409,6 2065,0 −14,30% 19,09%
Urea 1308,0 1253,5 −4,17% 11,59%
Nepheline Concentrate 871,3 839 −3,71% 7,75%
Ammonium nitrate 467,8 629,4 34,54% 5,82%
NPS 719,5 491,2 −31,73% 4,54%
MCP 294,7 291,6 −1,05% 2,70%
APP 148,1 149,8 1,15% 1,38%
STPP 70,9 67,3 −5,08% 0,62%
Other 68,6 61,2 −10,79% 0,57%
Ammonium sulfate 10,4 44,9 331,73% 0,42%
PKS 49,5 8,5 −82,83% 0,08%
Total 11 330,30 10 819,00 −4,51% 100%

Financial performance. IN 1 half of 2021 financial indicators have increased significantly compared to the same period of the previous year. This is due to the relatively low level of average world prices for phosphate and nitrogen fertilizers in 2020, which recovered in 2021. Nitrogen fertilizer deficit, caused by high gas prices, leads to higher prices. All this caused a record increase in net profit..

Based on the results of 9 months of 2021, the group of companies has not yet published financial results. But given, that the decline in sales volumes was lower, than in 1 half a year, can be expected, that the growth of financial indicators against the background of the global increase in fertilizer prices will not change.

The output of finished products for the specified reporting period increased. This further enhances the prospects of, that the growth of financial indicators will continue. The production of DAP / MAP and NPK fertilizers is increasing - they are most in demand on the world market. All these factors indicate that, what from the publication of financial data for 9 months of this year, we can expect an impulse to continue the rally in the group's share prices.

PhosAgro's Financial Results, billion rubles

6м2020 6м2021 The change
Revenue 123 996 176 261 42,15%
EBITDA 39 864 73 094 83,36%
EBITDA margin 32,10% 41,50% 29,28%
Net profit 5291 48 652 819,52%
Free cash flow 20 274 34 217 68,77%

Plans and prospects

The group of companies plans to increase the production of fertilizers and feed phosphates. By 2025, its volumes should be 11.7 million tons.. By the indicated period, sales on the Russian market should increase to 3.7 million tons, in Europe - up to 3.1 million tons. Apatite concentrate production to grow to 11.1 million tonnes. The range of fertilizer brands will be 50 names - this is due to the increased demand in Europe for fertilizers with dietary supplements.

The increase in production volume is associated with the construction of a plant in the Leningrad region with a capacity of 630 thousand tons and the modernization of production in the Saratov region - already in 2022, production should amount to 3.3 million tons. Largely due to this, it is planned to bring supplies to the domestic market up to 60%.

The reorientation to the Russian market is quite consistent with the forecasted trends in agriculture in the Russian Federation.. In 2022, budgetary spending on agricultural development will be increased by 5.3 billion rubles, in 2023 - by 9.3 billion rubles, in 2024 - by 21.9 billion rubles. The state program for the development of agriculture will be extended until 2030, by that time, agricultural production in Russia will increase by 14,6% regarding 2020.

Despite the expansion of sales in Russia, the group of companies does not forget about export. In this case, the factor is taken into account, that the European Parliament and the European Council will ban from 2022 the sale and use of phosphate fertilizers with a high content of heavy metals in the EU.

Food and Agriculture Organization of the United Nations encourages all countries of the world to follow the example of the EU. PhosAgro products meet this requirement, since phosphorus ore from the Khibiny Murmansk region has a low content of heavy metals. There's a possibility, that Russia will also pass a similar law, which will be called the "Green Standard", which will help the company to reach the planned share of domestic sales and support the shares.

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It is also planned to increase the capacity of the transport infrastructure.. Additionally, the company plans to increase and modernize its own wagon fleet.

The new dividend policy provides for payments of up to 100% free cash flow. This will positively affect the value of the shares..

Risks

Fertilizer export quota. The main risk in the medium term is associated with the introduction by the Russian government of a fertilizer export quota - for the first time in history. This may hit the hardest hit on exports of complex fertilizers by a group of companies. (NPK). They make up 49% the entire market in Russia. Consequences in the form of decreased performance and, respectively, stock prices, not expected, since the quota is comparable to the current volumes of Phosagro supplies abroad. But it will not work to increase exports, and if the group does not fulfill the plan for reorientation to the domestic market, Stock Price Rally Could Stall. Quota, truth, will operate for six months and is unlikely to have a long-term negative impact. At the same time, shares reacted to the news with a short-term fall.

Rising gas prices. The second risk is caused by rising gas prices. It would seem that, for Russia this is a positive phenomenon. But not for fertilizer producers. Cost of fertilizer production, primarily nitrogen, can take off.

One side, after the abolition of the quota, it will be profitable for the company to export its products to Europe, where gas prices are even higher and there is a shortage of nitrogen fertilizers with an increase in their prices. On the other hand, increase in the cost of production can reduce the net profit.

Production disasters. Accidents happen at any enterprise, and Phosagro is no exception. The last such incident occurred at Apatit JSC in Cherepovets: three people were injured due to ammonia emissions. The accident led to a fall in stocks 29 November 2021 - the day after the incident. However, the drop was not significant, because the leak was immediately localized.

Accidents and fatalities happened at the enterprises of "Phosagro", and not only ordinary workers died, but also top management. Ecology also suffered: in particular, in 2010, due to a dam break, chemicals were released into the Rybinsk reservoir. In 2020, there was a fire at a mine in the Murmansk region, truth, it did not lead to any disastrous results.

Dusting of the tailing dump at the mine in Apatity occurs regularly, almost every year. There was even a radiation contamination incident. Toxic emissions into the atmosphere were in Volkhov in 2019.

The risk of disasters is directly related to the risk of loss of business reputation. In particular, after the explosion in the port of Beirut of ammonium nitrate in 2020, information began to be circulated about, that at the enterprises of "Phosagro" saltpeter is stored allegedly with violations. This is not the only publication of the newspaper "Cherepovetskaya Truth", which accuses Phosagro of violations of safety standards: accusations were also in air pollution, and in the powerlessness of employees in the event of deaths at work. About that, for the group of companies to file claims against the media to protect business reputation, no information.

conclusions

Phosagro faces significant risk due to the adoption of quotas for the export of complex fertilizers. However, the possibility of increased sales in Russia and the prospects for a possible increase in exports of environmentally friendly phosphates to Europe increase the likelihood of a rise in the stock over the long term., especially after the quota is abolished.

Also, this probability is increased by the fact that, that in the norms of environmental control over the turnover of fertilizers, Russia can follow the European countries: fertilizers from phosphorus will be in demand, mined from pure Khibiny igneous ores.

The risk of competition for Phosagro is small. The company mainly occupies the phosphate niche, Advantage, as already mentioned, is the low content of cadmium in the phosphorus produced by the company.

In this way, prospects for a further rally in the company's shares are high, subject to the implementation of the listed plans.

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