EUR 87.20 For Business Accounts Only

FERTIGLB:UH | Initiate at OW, with 12M TP of AED7.10/share

A compelling case for urea. Russia, the largest exporter of urea (18% share), halted fertiliser exports, leaving the global urea market in short supply. Urea prices skyrocketed 22% y-t-d and have strong support, amid a mix of limited supply, elevated global energy prices, and favorable demand fundamentals, as the world struggles with rising crop prices. Fertiglobe is a direct beneficiary of this unprecedented backdrop, as the largest export-focused N platform, with a combined production capacity of 6.5mn tpa, enjoying a low 2022e blended gas price of USD3.3/mmBtu.

Attractive valuation. We expect EBITDA to soar c127% in 2022e, implying an EV/EBITDA of 3.3x. This reflects a 31% discount to global peers, and a 56% discount to the industry’s historical average of 7.5x, not justified, in our view. We see the market valuing the stock based on short-term dynamics, but we also believe structural medium and long-term industry changes support a higher urea price floor.

Superior cash generation; 2022e dividend yield seen at 9%. Fertiglobe’s balance sheet is debt free, with a net cash balance of USD701mn in 2022e. This confirms our view that the rise in profitability and FCFF (Fertiglobe’s FCFF yield to reach 13% in 2022e) should reflect on dividends, with an estimated dividend payment of AED0.45/share in 2022e, yielding 9% — among the highest in the UAE.

Stronger urea prices pose upside. We expect a urea price of USD800/t in 2022, down to USD600/t in 2023, USD500/t in 2024, and USD450/t in 2025. Our 2022 assumption compares to a spot price of USD1,150/t. There would be an 8.2% increase/decrease in our 12M TP for each 5% higher/lower-than-expected urea price p.a., all else constant. We see limited downside risks, given management quality, and relative stability in the MENA region amid the ongoing Russia-Ukraine conflict.