Colour Investment

Colour Investment

Analysis of the attractiveness of equity PJSC Phosagro

April 4, 2020, 08:05 PM • ☕️ 4 min read


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We analyzed liquid and large public companies from the top of 75 by market capitalization on the MOEX and found out one of the companies that was least affected by lower oil prices, falling stock markets and a weakening Russian ruble in March 2020. This company is PJSC “Phosagro” (PHOR), which is represented in the sector of chemistry and fertilizers (chemicals), and is highly liquid with a free-float coefficient of 25% at April 4, 2020. The main production of the company is focused on phosphate-containing (~ 80% of gross profit) and nitrogen fertilizers (~ 20% of gross profit) according to official reporting for 2019. At the same time, 80% of fertilizer sales are concentrated in 3 markets - Russia (28%), Europe (25%), and Latin America (20%), which is positive in terms of regional diversification and risk management.

On the chart below, we presented the dynamics of the ordinary shares of PJSC Phosagro and the daily trading volume in units since October 2016. Unlike most shares of the oil and gas or metallurgical sector, which grew after the fall in oil prices in 2016, this share was in the lateral movement for the entire specified period mainly at the levels of 2 150-2 500 rubles / share. To a greater extent, this fact is a disadvantage of the shares of PJSC “Phosagro”, which is not a growth share. However, during the period of volatility and falls in the oil and financial markets, the stock is quite stable and not only does not fall, but also grows.

Динамика акций и объем торгов

The main drop in growing shares, and especially shares of resource companies (oil and gas sector, metallurgy, transport) occurred after March 6, 2020 and continued for the next 3 weeks (21 days). We analyzed how the action of PJSC “Phosagro” behaved on each of these days relative to the closing price on March 6 and presented the results in the table below.

As can be seen, the maximum drop occurred on March 13 and 16, when the share price fell by 7% and 5%, respectively. It is worth noting that on these dates almost the lowest value was observed for shares of other sectors: the oil and gas sector decreased by 35-45%, transport - by 25-40% relative to the closing price on March 6, metallurgy - by 25-35% lower.

Таблица изменений

On the other hand, we illustrate that after a general rebound from March 18–20 of 2020, the shares of PJSC “Phosagro” grew on average by 7–9% in the next 14 days, i.e. globally, the oil crisis and the spread of coronovirus did not adversely affect the company’s shares, and they continued to grow. One of the factors behind this is the weakening of the Russian ruble, since about 70% of Phosagro’s sales are in European and American markets. We can state that the weakening of the ruble at the end of March by an average of 15% led to an increase in the shares of PJSC Phosagro by 8-10%. For this, we also presented a chart of the stock price of Fosagro PJSC and the dollar to ruble exchange rate. Our calculations show that on the intervals from 3 months to the last 2 years, the correlation between the change in the exchange rate and the change in the share price averaged 20-25%, i.e. These indicators are moving in one direction.

График с валютой

We also analyzed the operational activities and financial performance of Phosagro and presented them below:

• The company has 4 main resource bases located in the Russian Federation

• The total life of deposits (resources) is more than 50 years

• Production is focused on 3 areas - Phosphate fertilizers, Nitrogen fertilizers, Apatite concentrate

• The main raw materials for production are sulfur, natural gas, ammonia, potassium, electricity

• The company pays quarterly dividends

• Free cash flow - The basis for calculating dividends

• 60% - the average value of the cash flow for the payment of dividends: pays in the range of 50-75% of FCF depending on NET DEBT / EBITDA.

PJSC “Phosagro” carries out sustainable operating activities, the financial indicators of the company are growing year-on-year for 2016-2019. NET DEBT / EBITDA is 1.7x.

Финансовые показатели

The updated dividend policy allows the company to provide about 7-9% of dividend yield for 1 year (192 rub/per share). Phosagro has a high ROIC of 20.4% and reflects the overall performance of the company’s capital. The company has fully foreign currency debt, which is 80% in dollars and 20% in euros. This is reasonable, since most of the company’s sales are in dollars and euros, and foreign currency lending rates continue to decline and are at the level of 2-3% per annum. PJSC “Fosagro” is an effective and sustainable company that provides a sufficiently high profitability for shareholders and allows you to save and increase investments even in times of crisis when the coronovirus infection COVID-19 spreads.

Финансовые показатели

In conclusion, we suggest that the stock of Phosagro PJSC can become a safe haven and a hedge of crisis risks for an investor in the Russian stock market, providing high dividend yield. A stock may be interesting in the long run for a conservative investor and be a good substitute for corporate and government bonds, which over the past month have lost in average price from 5 to 10 pp Our recommendation for the stock is Hold, which coincides with the consensus forecast and recommendation of investment bank analysts (2 527 - 2 810 rubles / share).

Phosagro official financial reports (RAS & IFRS)

Phosagro official dividend policy