AGRIUM INC. $83(Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $13.1 billion; Price-to-sales ratio: 0.8; Dividend yield: 0.5%; TSINetwork Rating: Average; www.agrium.com) makes fertilizers from natural gas. It sells its products to farmers and industrial users through its more than 1,200 stores in North America, South America and Australia. The company’s retail outlets help shield it from volatile fertilizer prices.
Agrium continues to add more stores. It recently agreed to pay $1.65 billion (all amounts except share price and market cap in U.S. dollars) for 230 outlets in western Canada operated by Viterra Inc. It will also purchase Viterra’s 17 stores in Australia, plus its 34% stake in a fertilizer plant in Alberta. Agrium will buy these businesses from Glencore International plc, which is now in the process of taking over Viterra.
Previous acquisitions boosted results
Agrium’s sales jumped 90.3%, from $5.3 billion in 2007 to $10.0 billion in 2008, mostly due to the acquisition of U.S.-based farm-products retailer UAP Holding Corp. That doubled the size of Agrium’s retail business. Sales fell 9.0%, to $9.1 billion, in 2009, because the recession hurt fertilizer demand. However, sales rebounded to $10.5 billion in 2010. Agrium’s purchase of 400 farm-supply stores in Australia and New Zealand helped lift its sales to $15.5 billion in 2011.
Earnings jumped 156.6%, from $3.25 a share (or a total of $441.0 million) in 2007 to $8.34 a share (or $1.3 billion) in 2008. Earnings then fell 72.1%, to $2.33 a share (or $366.0 million), in 2009, but turned around in 2010 and shot up to a record $9.52 a share (or $1.5 billion) in 2011.
Cash flow per share soared from $3.89 in 2007 to $9.81 in 2008. It then dropped 60.6%, to $3.87 a share, in 2009. However, Agrium’s cash flow per share improved to $6.74 in 2010, and to $11.93 in 2011.
Healthy balance sheet is a huge plus
Agrium held cash of $1.75 billion at March 31, 2012, but will probably borrow most of the money it needs to buy the Viterra stores. Still, its long-term debt of $2.1 billion is a low 16% of its market cap, so it can easily afford to take out more loans.
The company is also investing in new growth projects. For example, it is spending $1.5 billion to increase production at its potash mine in Vanscoy, Saskatchewan, by 50%. The company expects to complete this project in 2014.
Agrium’s earnings will probably fall to $9.29 a share in 2012. The stock trades at just 8.9 times that estimate.
Long-term trends will fuel growth
Still, the long-term outlook for fertilizer is bright, particularly as countries with growing populations, such as China and India, try to increase their crop yields. Agrium should also continue to gain from weak prices for natural gas, a key raw material. The $0.45 dividend yields 0.5%.
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