uploads///Valuation Multiple

Where Fertilizer Companies’ Valuation Multiples Stood on June 15

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Jun. 27 2016, Updated 2:04 p.m. ET

Valuation multiples

So far in this series, we have discussed how agricultural fertilizer companies (XLB) performed in 1Q16. With challenges in shipments and realized prices, key metrics such as margins and EPS (earnings per share) growth have been deeply impacted. This also casts a shadow on the future of the industry and investors’ willingness to invest.

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Median

Over the long run, valuation multiples impact a company’s share price. We’ll use the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. The median valuation multiple hit a five-year low of 5.8x earlier in January with prospects for the industry looking grim.

However, things have picked up since then. The median valuation multiple EV-to-EBITDA of the above seven companies was ~8.2x on June 15, which is above its five-year average of 7.7x.

Companies

CF Industries (CF), Israel Chemicals (ICL), CVR Partners (UAN), and Intrepid Potash (IPI) were trading close to the five-year industry average of 7.7x.

On the high side, Potash Corporation (POT) was trading at a multiple of 10.4x, which was above all the companies’ multiples. Agrium (AGU) and Mosaic (MOS) were trading at 9.6x and 8.5x, respectively.

In the final part of this series, we will look at analysts’ price target and ratings for the above companies.

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