Important news and key indicators
Branch: chemical industry
Sector: materials
Ticker: PHOR
Country: Russia ??
Buy Phosagro shares at Tinkoff Investments
Table of contents
- About company
- Organizational structure
- Assets
- Segments
- Key operating and financial indicators
- Why Stocks Can Go Up
- Why Stocks May Fall
- Dividend policy
- What is important to know right now
- What we wrote earlier about this company
? About company
Phosagro (MCX: PHOR) — Russian fertilizer producer. The company tops the list of leaders in terms of production of phosphate-based fertilizers in Europe. The product line includes 50 fertilizer grades, which are sold in 100 countries around the world for the agricultural industry. The company's shares are traded on the Moscow Exchange under the ticker symbol PHOR.
? Organizational structure
10 March 2022, Mikhail Rybnikov was appointed to the post of General Director of PhosAgro, who served as Deputy General Manager. Before him, the company was headed by Andrey Guriev, which was included in the EU sanctions list 9 March and left the leadership position. Besides, Guriev and members of his family resigned from the board of directors of PhosAgro, to get the company out of sanctions.
Prior to that, members of the Guriev family not only held senior positions and were members of the board of directors., but also owned the largest stake in the company - directly and through the Cypriot companies Chlodwig Enterprises AG and Adorabella AG.
Shares of Chlodwig Enterprises AG and Adorabella AG transferred to trusts due to EU sanctions, whose economic beneficiaries are Andrey Guryev, his wife and daughter. PhosAgro website says, that they are entitled to receive only economic benefits from the activities, but not to control the actions of the company.
Vladimir Litvinenko, rector of St. Petersburg Mining University, owns the second largest stake in Phosagro after the Guriev family..
Structure of share capital on 31 December 2021 of the year
| Adorabella AG | 23,35% |
| Chlodwig Enterprises AG | 20,31% |
| Vladimir Litvinenko | 20,98% |
| Evgeniya Guryeva | 4,82% |
| Other shareholders | 30,54% |
23,35%
? Assets
Phosagro operates in four main areas: production and sale of nitrogen, phosphorus-containing double and triple fertilizers, feed phosphates, as well as chemical raw materials. The average number of employees is about 18 thousand people, and the total production capacity exceeds 10 million tons of fertilizers per year. The book value of assets reaches 400 billion rubles.
The company controls the entire production chain, from ore mining and processing to the production of fertilizers of various grades for subsequent sale in Russia and abroad.
The main production facilities are located in Russia. Mining and processing enterprises are located in the Murmansk (Kirov branch of JSC "Apatit"), Vologda (JSC "Apatit"), Saratov (Balakovo branch of Apatit JSC) and Leningrad (Volkhov branch of Apatit JSC) areas.
Extraction and processing. The company provides itself with a resource base for the production of phosphate raw materials thanks to its own deposits of nepheline ore of igneous origin. The world's largest mining and processing complex is located in the Murmansk region, where high-grade phosphate raw materials and nepheline concentrate are produced.
Production. Recycled raw materials are used in the production of fertilizers and feed additives at three production sites:
- Cherepovets production complex "Apatit" in the Vologda region is the largest in Europe for the production of carbamide and mineral fertilizers at one production site.
- Balakovo chemical cluster in the Saratov region - production of phosphorus-containing and feed phosphates.
- The Volkhov Chemical Cluster in the Leningrad Region is one of the Russian leaders in terms of production of mineral fertilizers.
Logistics. PhosAgro controls its own logistics infrastructure, which includes two port terminals, as well as the country's largest distribution network of mineral fertilizers and feed phosphates. The company's sales geography includes about 100 countries around the world., and key sales markets, except Russia and CIS countries, countries of Europe, Asia, Africa, North and South America.
Structure of export revenue by geographic regions in 2021
| Europe | 37,7% |
| South America | 33,5% |
| North America | 10,2% |
| India | 6,4% |
| Africa | 5,8% |
| CIS | 3,9% |
| Asia | 2,5% |
37,7%
? Segments
PhosAgro's financial statements include two major operating segments, or, what the company calls them, two strategic business units.
Phosphorus-containing products. The design capacity of the company's enterprises allows to produce about 8 million tons of products per year, including the release of ammophos, diammonium phosphate, sodium tripolyphosphate and other phosphate and complex fertilizers, which are used in agriculture to increase productivity.
Nitrogen-containing products. The production capacity of the segment is about 2.5 million tons of products per year and mainly includes the production of ammonia, ammonium nitrate and urea at the plant in Cherepovets. All products of the segment are used in agriculture.
Besides, There are several types of revenue and expense items., that do not belong to any particular segment and are reported as "Other activities". The company does not disclose details regarding, what belongs to this category.
Structure of sales revenue by segments in 2021
| Phosphorus-containing products | 79,2% |
| Nitrogen-containing products | 17,1% |
| Other revenue | 3,7% |
79,20%
Last Updated: 29 March 2022 ? Key operating and financial indicators
Sales revenue. The company's revenues consist of two components: phosphorus sales volume- and nitrogen-containing products, as well as average selling prices.
The difference between sales revenue and cost of sales is called gross profit.. In order to calculate the net profit, from the gross subtract net operating and financial expenses, including tax payments and one-time items from non-cash revaluation of exchange rate differences and asset values.
Net profit. Allows you to evaluate the final results of activities in monetary terms. Dividends are paid from net profit and investment projects are financed without increasing the debt burden. Besides, the net profit indicator is used in the calculation of popular multipliers to assess the investment attractiveness of the business.
Coefficient P / E – the ratio of market capitalization to net profit. Determines, for how long can the company theoretically "recoup" the investor's investments in the issuer's securities.
Коэффициент ROE – the ratio of the company's net profit to its capital. Says that, how efficiently the company uses its capital compared to competitors.
free cash flow - sum, that the company generates from operating activities, net of investment costs and adjusted for interest received and paid. This indicator indicates that, how much the company can allocate for dividends without harming the business.
What's changed in the new report
| Revenue ↑ +66% | Natural gas is used in the production of fertilizers. Rising gas prices in the European market during 2 half of 2021 led to an increase in the cost of production of mineral fertilizers, the closure of a number of enterprises and a sharp increase in prices for fertilizers around the world. PhosAgro controls costs thanks to high vertical integration and access to cheap Russian gas |
| Cost of sales ↑ +31% | |
| Gross profit ↑ +131% | |
| Free cash flow ↑ +83% | Thanks to the wide geography of sales, management optimized sales there, where demand and prices for products increased. The business generated record free cash flow and net income by increasing sales volumes and average selling prices |
| Adjusted net income ↑ +200% | |
| Net debt ↓ −2% | The company increased the amount of loans and borrowings, but compensated for this by increasing the amount of money and their equivalents in the accounts |
| Fertilizer production ↑ +3% | The company spent almost 50 billion rubles for capital investments and launched a new plant in the Leningrad region |
| Equity ↑ +53% | The company made more money, than paid dividends to shareholders |
| Retained earnings ↑ +63% |
Natural gas is used in the production of fertilizers. Rising gas prices in the European market during 2 half of 2021 led to an increase in the cost of production of mineral fertilizers, the closure of a number of enterprises and a sharp increase in prices for fertilizers around the world. PhosAgro controls costs thanks to high vertical integration and access to cheap Russian gas
Dynamics of operating indicators, million tons
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Production of apatite and nepheline concentrates | 10,54 | 11,05 | 11,69 | 11,7 | 11,8 |
| Production of phosphate fertilizers | 6,61 | 6,85 | 7,26 | 7,58 | 7,89 |
| Production of nitrogen fertilizers | 1,73 | 2,12 | 2,25 | 2,4 | 2,41 |
| Sales of phosphate fertilizers | 6,49 | 6,63 | 7,26 | 7,67 | 7,76 |
| Sales of nitrogen fertilizers | 1,62 | 2,2 | 2,2 | 2,29 | 2,49 |
Dynamics of financial indicators, billion rubles
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Revenue | 181,4 | 233,3 | 248,1 | 253,9 | 420,5 |
| Operating profit | 36 | 54 | 51,7 | 59 | 164,1 |
| Net income before adjustments | 25,3 | 22,1 | 49,4 | 16,9 | 129,7 |
| Net income after adjustments | 21,2 | 41,7 | 37,1 | 43,4 | 130,2 |
| free cash flow | −5,9 | 20,5 | 28,3 | 42,5 | 77,9 |
Dynamics of capital expenditures, net debt and EBITDA, billion rubles
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Capital expenditure | 35,9 | 38,4 | 42,7 | 40,9 | 48 |
| net debt | 120,0 | 135,3 | 131,6 | 156,9 | 153,7 |
| EBITDA | 50,8 | 74,9 | 75,6 | 85,7 | 191,8 |
Dynamics of key multipliers
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| P / E | 15,3 | 7,9 | 8,4 | 9,4 | 5,8 |
| ROE | 21,6% | 38,1% | 29,5% | 40,3% | 79,1% |
| net debt / 12mEBITDA | 2,4× | 1,8× | 1,7× | 1,9× | 0,8× |
? Why Stocks Can Go Up
Good prices in the fertilizer market. Prices for mineral fertilizers increased in 2021 due to rising inflation, violations of logistics supply chains and rise in the cost of raw materials. Rising prices for fertilizers in the future against the backdrop of the food crisis may lead to a further increase in prices for phosphorus and nitrogen fertilizers.
Flexible sales policy. Phosagro supplies products to more than a hundred countries. Thanks to its wide diversification, the company is able to maintain a flexible sales policy and redirect product volumes to markets with the highest profitability., maintaining high profitability of sales.
Cheap raw materials and complete self-sufficiency. The company controls the entire production chain and largely provides its own production with raw materials. This allows you to work smartly with costs and creates a competitive advantage..
Large-scale modernization. In recent years, the company has been investing significant amounts in the modernization of old and construction of new facilities.. This allows the business to expand the product line and annually update the historical maximum in terms of the volume of fertilizers produced..
? Why Stocks May Fall
price dependence. Business is highly dependent on price dynamics in the global fertilizer market. Deteriorating market conditions and falling prices for phosphate and nitrogen fertilizers may lead to a drop in key financial indicators.
Sanctions and export restrictions. Huge volumes of the company's exports fall on "unfriendly" countries. Restrictions on the supply of Phosagro products to these countries will lead to a drop in sales and reduce revenue and profit.
Internal restrictions. Rising prices on world fertilizer markets to historical highs will lead to strict control over export volumes and prices on the domestic market by the Russian authorities. This will lead to a decrease in the profitability of sales..
The government has already introduced a number of restrictions on the industry, which force producers to "freeze" prices at the level of the average values of May - July 2021.
Reducing dividend payments. In recent years, Phosagro has been among the market leaders in terms of dividend yield of securities. Furthermore, the company paid dividends 4 times a year at the end of each reporting quarter. Reducing payments will lead to an outflow of investors and, Consequently, drop in the company's quotes.
? Dividend policy
Phosagro's dividend calculation base is free cash flow for the reporting period, calculated in accordance with IFRS consolidated financial statements.
Free cash flow share, which can be used for dividends, depends on the level of debt load, calculated by the ratio "net debt / EBITDA». At the same time, there is a condition in the policy, that dividends cannot be less 50% from adjusted net profit.
In recent years, the company has been paying dividends to shareholders 4 times a year at the end of each reporting quarter.
Dividend policy of Phosagro
| net debt / EBITDA | How much will be spent on dividends |
|---|---|
| < 1 | No less 75% free cash flow |
| 1—1,5 | From 50 to 75% free cash flow |
| > 1,5 | No more 50% free cash flow |
How much will be spent on dividends
The amount of dividends per share according to the results of the reporting period
| 2016 | 165 R |
| 2017 | 81 R |
| 2018 | 192 R |
| 2019 | 192 R |
| 2020 | 297 R |
| 2021 | 885 R |
165 R
? What is important to know right now
US withdraws mineral fertilizers from Russia from sanctions. The Office of Foreign Assets Control of the US Treasury has included fertilizer in the list of essential products. In fact, this means the removal of restrictions on the supply of fertilizers from Russia to the United States and allows Russian producers to, including PhosAgro, maintain its presence in the North American market. It is logical to expect similar indulgences from the US allies, including EU countries, which are major consumers of mineral fertilizers from Russia.
Control over foreign trading divisions of Phosagro passed to management. In March, the company reduced its stake in trading company Phosint Limite from 100 to 5%. Previously, Phosagro directly owned and operated its trading companies abroad, but under the conditions of Western sanctions, she chose to officially exit the business and transfer control to management. Thus, the company is trying to avoid restrictions from "unfriendly" countries., secure foreign counterparties and maintain uninterrupted supplies to export markets.
Phosagro postponed the annual meeting of shareholders. Meetings are usually held in the last days of May., but in 2022 it will take place 30 June in absentia. The meeting will raise questions about the approval of dividend payments and the annual report for 2021.
Andrey Guriev resigned as CEO of Phosagro after being included in the sanctions list. The company was headed by his deputy - Mikhail Rybnikov. The Guriev family transferred the stake in PhosAgro to a special trust and no longer has direct control over the company's activities.
The reverse side of the sanctions. Europe could face fertilizer shortages and low yields in 2022 amid high natural gas prices and Russian supply restrictions.
? What we wrote earlier about this company
- Review of PhosAgro results for 2021.
- PhosAgro Review: phosphates and complex fertilizers.
- PhosAgro generated record cash flow and profit in 2020.
- Phosagro breaks records in production and sales.
- New record for Phosagro: 10 million tons of fertilizers in 2020.
- Investidea: Phosagro, because it copes well with bad conditions.
- PhosAgro sold more fertilizers in six months, what produced.
- Phosagro's net profit increased by 2 times thanks to the strong ruble.
- PhosAgro adopted a new dividend policy and continued to invest.
- Why Phosagro's net profit collapsed in 6 once, despite record sales.
