09.02.2021 kl 20:02 2612

HBC har sett lyset....

Green growth adds to stronger fertiliser fundamentals - Target price change

A distinctive and leading position within ammonia and hydrogen
Our estimates surge on a tight fertiliser market, particularly H1 2021e
Target price up to NOK 475 (425); we reiterate BUY

ROIC growing steadily; dividend proposal was a positive surprise

Yaras Q4 adjusted EBITDA was 4% above consensus, with the quarter showing improved deliveries of premium products in all regions and a positive performance by Industrial Solutions. Cash flow was much better than we assumed, thanks to lower investments and working capital. Yara will propose a dividend of NOK 20 per share at the AGM (we expected NOK 18), bringing the 2020 total cash distribution (i.e. dividends and buybacks) to NOK 52 per share. To us, the key news alongside the report was that Yara has established a new Clean Ammonia unit (a reporting segment starting from Q1 2021) to capture growth opportunities within green/carbon-free hydrogen and ammonia production, transport and distribution.

Yara has the large-scale infrastructure in place

According to Hydrogen Europe and Yara itself, utilising ammonia infrastructure is the only realistic way to achieve the EUs hydrogen goals. Yaras ammonia plants can be retrofitted at significantly lower cost than greenfield projects. Ammonia is the ideal hydrogen carrier and Yara has more than a 20% global market share of trade, has planned 2023-25 green ammonia pilots/start-ups, and has ammonia vessels, storage and terminals. Moreover, full electrification of its ammonia unit in Porsgrunn is possible with limited infrastructure investments.

We assume a 2021 payout to shareholders that is equal to 2020

Based on the strong fertiliser market, we substantially raise our H1 2021 estimates, but despite the significant increase, this still appears cautious compared with todays market prices. Based on our estimates, we assume that Yara can pay out an equal amount to shareholders in 2021 as in 2020 and remain well within its targeted capital structure (i.e. we lift 2021e DPS from NOK 32.7 to NOK 52). Owing to our higher EPS and dividend estimates, alongside green opportunities, we lift our target price to NOK 475 (425). BUY.

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