Morningstar | No Changes To Our Outlook for Nutrien as It Confirms Speculation of Ruralco Acquisition
On Feb. 26, Nutrien responded to speculation that the company would acquire Ruralco after Ruralco's shares halted trading on the Australian Securities Exchange. Nutrien announced that it is, indeed, in discussions to acquire the company, which provides products and services for the agriculture industry. However, Nutrien noted that a decision has not yet been made as to whether or not it will proceed with a formal offer. As of now, no agreement with Ruralco has been reached. We maintain our fair value estimates of $68 and CAD 90 per share for Nutrien. Our narrow-moat rating is also unchanged.Even if Nutrien and Ruralco agree deal terms, we note that Ruralco's small size relative to Nutrien is not likely to result in a large change to our fair value estimates. Currently, Ruralco has an enterprise value of roughly AUD 450 million, or around $325 million based on the exchange rate of AUD 1.39 per $1 at the time of writing. This amounts to slightly less than 1% of Nutrien's market cap.
Nutrien continues to pursue a tuck-in acquisition strategy to grow its retail business, and Ruralco represents another such opportunity. We are in favor of the strategy, as Nutrien can generally grow the per store profit margins of recently acquired locations by selling its proprietary seed and crop chemical products and offering its digitally integrated agronomy services. All of these support higher profit margins than typical agricultural retail products.
Nutrien Ltd is Canada-based crop nutrient producer and distributer of potash, nitrogen and phosphate products for agricultural, industrial and feed customers worldwide. The Company is focused on retail, potash, nitrogen and phosphate mining and processing operations. The Company's retail operations serve growers in a number of countries across the United States, Canada, South Africa, Australia and South America. The Company operates six potash mines in Saskatchewan and has a mine in New Brunswick in care-and-maintenance mode. The Company operates integrated phosphate mining and processing facilities, as well as a number of smaller upgrading plants in the United States.
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