Agrium versus its peers
In the last part of this series, we noted JANA’s argument in 2012 that Agrium’s (AGU) profitable retail division was undervalued. JANA said that the company had “consistently underperformed the weighted average of its pure play peers on a long-term basis.”
While JANA exited its position in Agrium last year, ValueAct has seen “significant strategic value” in Agrium, according to Newswire reports. ValueAct disclosed an activist stake in October.
A comparison of enterprise value (EV) to the earnings before interest, tax, depreciation, and amortization (or EBITDA) multiple for Agrium and its peers in the fertilizer sector, shows that the Canadian fertilizer producer trades almost in line with its peers.
However, its forward EV to EBITDA multiple is slightly lower than the peer average of 9.2x. The company’s dividend yield is also the second highest among its peers—after CF Industries.
While the fertilizer and agriculture sectors are currently facing challenging market conditions due to falling crop prices and lower planted acreage, a report on the Market Realist website said that hedge funds owned more than 10% of the VanEck Vectors Agribusiness ETF (MOO) in 2Q14.
Retail division has no direct publicly-traded peers
Although Agrium’s retail division has no direct publicly-traded peers, a 2012 analysis from Agrium’s advisor—Morgan Stanley—said the Retail unit’s forward EV to EBITDA trades at around eight times. This was comparable to its peers.
Morgan Stanley compared the retail segment to “distribution comparables” like Brenntag AG (or BNTGF), Beacon Roofing Supply Inc. (or BECN), Airgas Inc. (or ARG), MRC Global Inc. (or MRC), and Reliance Steel & Aluminum Co. (or RS). A current evaluation of the forward EV to EBITDA multiple of its peers showed that Agrium trades almost in line with the peer average.
In 2012, analysts and JANA noted that Agrium lowered its retail valuation by changing its peer group from those outlined in an earlier 2011 investor presentation. The previous peer group included Tractor Supply (or TSCO) Co., Watsco Inc. (or WSO), W.W. Grainger Inc. (or GWW), and Genuine Parts Co. The group had a higher EV to EBITDA multiple of 11x.
Since 2012, Agrium grew its retail division through acquisitions and product portfolio expansions. It’s targeting an EBITDA of $1.3 billion in 2015.
In the next part of this series, we’ll discuss Agrium’s results for 3Q14.
Crop nutrient sales fell slightly to $646 million in 3Q14—from $654 million in 3Q13. Agrium said the decline was due to lower global nutrient prices and U.S. volumes.
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