Credit Suisse raises its target share price for Norway’s Yara

23 July 2012 13:10  [Source: ICIS news]

LONDON (ICIS)--Investment bank Credit Suisse on Monday raised its target share price for Yara International after the Norway-based fertilizer producer's second-quarter earnings beat expectations.

Credit Suisse raised Yara’s target share price to Norwegian kroner (NKr) 297 ($49, €40) from NKr282 and reiterated a “Neutral” rating for the company.

“Yara beat expectations in Q2 benefiting from its flexible production system to maximise margins in a quarter with volatile prices,” the investment bank said.

“We reiterate our Neutral rating believing the share pricing in a good balance between the tailwind from near-term strong grain prices and medium-term headwinds from increasing nitrogen supply,” Credit Suisse added.

Yara on 18 July said upstream operations delivered its second “best ever” quarter thanks to a combination of high volumes and prices.

The company posted a 26% year on year jump in second-quarter net income to Norwegian kroner NKr2.80bn as it benefited from better margins and more fertilizer deliveries due to “tight balance in most agricultural markets”.

Second-quarter sales increased 15% year on year to NKr21.4bn, while earnings, before interest, tax, depreciation and amortisation (EBITDA) excluding special items surged 47% year on year to NKr5.20bn.

Looking ahead, Credit Suisse said urea prices are expected to remain volatile, although prices have come down sharply from the peaks in second-quarter trading.

“The recent spike in grain prices should lend support to [urea] prices but we do not expect urea prices to sustainably follow corn higher,” it said.

Credit Suisse added that it expects new low cost-capacity from the Middle East and North Africa to overshoot its own expectations of robust demand and displace capacity at the high end of the cost curve driving prices lower.

“Falling nitrogen prices should directly hurt Yara's margins at its own production facilities and weigh on margins in Yara's global downstream operations,” it said.

($1 = NKr6.09, €1 = NKr7.38)

Additional reporting by Richard Ewing

By: Franco Capaldo
+44 (0)20 8652 3214

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