Grupa Azoty End of cheap gas paradise
We initiate coverage of Grupa Azoty with a SELL recommendation and fair value
of PLN 26.6 per share, which implies 11% downside potential. Our view on Grupa
Azoty is based on the assumption that the market opportunity observed in 2019
has now come to an end and natural gas prices will be quoted at levels above
EUR 16.0/MWh in the years ahead. Thus in 2020 it will be difficult to beat the high
base of 2019 in the fertilizers segment and we see no chance for a significant
improvement in the future given that Anwil will bring its new capacities online in
2022. The performance of the chemical and plastics segment is even more
uninspiring given the deteriorating macro outlook in Western Europe, the
slowdown in the automotive and construction industries and the tariff war
between the USA and China. Although we do not perceive Polimery Police as a
value-destructive investment, in our view there are still too many question marks
for us to be optimistic about the project over such a long time horizon. In our
base-case scenario we assume a low possibility of any dividends before 2022 due
to the company’s capital-intensive investments.
Grupa Azoty is engaged in the processing of nitrogen products, the production and sales of fertilizers, the production and sales of plastics, the production and sales of oxo alcohols, the production and sales of titanium dioxide, the production and sales of melamine, the extracting and sulphur products processing, and the extracting of phosphate rock. Co. and its subsidiaries have five operating segments: Fertilizers-Agro; Plastics; Chemical; Energy, includes activities that concern production of electricity and heat; and Other Activities, which comprises other operations, such as laboratory services, rental of properties and other activities that cannot be allocated to other segments.
Rapidly growing CEE brokerage with over 50 stocks under coverage across CEE4 countries: Poland, Czechia, Hungary, Romania.
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