A Fertile Value Situation

A strategically valuable, global fertiliser business trading at a ~34% FCF Yield and a ~57% discount to replacement value, offering 120% upside.

Disclaimer

Value Situations is NOT investment advice and the author is not an investment advisor.

All content on this website and in the newsletter, and all other communication and correspondence from its author, is for informational and educational purposes only and should not in any circumstances, whether express or implied, be considered to be advice of an investment, legal or any other nature.  Please carry out your own research and due diligence.

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2022 has been labelled a “year of unprecedented hunger” by the UN’s World Food Programme with record food prices due to the COVID pandemic, climate change, the energy crisis and most recently the conflict in Ukraine disrupting the global food supply. With the world now home to 8 billion people, feeding the global population is a major concern.

As I’ve written about before, food prices are highly correlated to energy prices, and with both grain and energy markets impacted by constrained supply and relatively inelastic competing demand, I believe both sectors are likely to underpin sustained inflation and possibly stagflation in the medium term.

In this context, my latest equity idea is another situation that I believe will prove to be resilient amid elevated food and energy prices in the years ahead.

This particular name is a European-listed, global fertiliser business that is focused on the “3 F’s” of fuel, food and feedstock. This company is essential to the food supply, and owns a strategically valuable, global asset base that is impossible to replicate, built around a unique “hidden jewel” asset that is the engine of its business and which provides it with a low-cost production advantage over peers.

The business also provides attractive upside exposure to the energy transition, which is not reflected in its current earnings or stock price, while the essential nature of its business, its real asset-backing and strongest-in-sector balance sheet combine to offer substantial downside protection.

In my view this is a compelling idea that subscribers should find very interesting in the current market climate…

“… it is ammonia that deserves the top position as our most important material: its synthesis is the basis of all nitrogen fertilizers, and without their applications it would be impossible to feed, at current levels, nearly half of today’s nearly 8 billion people.”

Vaclav Smil

“What I look for are companies that have some hidden jewel.”

Carl Icahn.