ACRON: Revisited after Urea Rally – Reiterate HOLD
Urea rallied on stronger demand and higher anthracite costs in China, returning the Fertiliser sector to investor radars, and spurring street upgrades of Yara, Acron’s direct peer. We have refreshed our Acron model, reviewed its investment case, and reiterate the HOLD rating as we do not believe its valuation levels are justified. The stock is trading at 6.7x FY17 EBITDA, which is close to all-time high and implies a 55% premium to its own 5Y average, while its discount to Yara has narrowed by 10 ppts to 15%. The industry’s mid-term challenges such as looming new supply and depressed crop prices are intact; the RUB is strengthening inflating Acron’s costs; while at urea above $250/t FOB, China will be incentivised to increase exports, in our view.
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