Newly-ranked Polish ferts maker ZAT rated a 'Buy' by Raiffeisen

29 January 2013 17:31  [Source: ICIS news]

LONDON (ICIS)--Raiffeisen Centrobank (RCB) has initiated coverage of Europe's newly-ranked second-largest fertilizer producer Zaklady Azoty Tarnow (ZAT) with a 'Buy' recommendation, noting the group can expect stable cash flows from its diversified fertilizer business for years to come, the bank said on Tuesday.

ZAT, which in Europe now only trails Norway-based Yara International for fertilizer capacity following its takeover of fellow Polish producer Zaklady Azotowe Pulawy (ZAP), has “emerged as a clear beneficiary of the Polish [state sector] chemical industry consolidation”, said RCB analyst Dominik Niszcz.

“The company has a wide range of products diversified into nitrogen and multi-component fertilizers and is able to compete with western European producers due to its high effectiveness of ammonia installations and lower labour costs but will need to face similar environment-related obligations including low carbon dioxide emissions,” Niszcz said.

“The European policy of protecting its agricultural industry secures local demand from the increasingly effective farming sector, making ZAT a less risky entity compared to the broad chemical sector,” he added.

The ZAT group, also one of the leading European producers of engineering plastics, oxo-alcohols used as plasticisers and melamine, may face a tough year in regard to its chemicals business, Niszcz observed.

“The chemicals business results are very volatile due to raw materials and product price fluctuations and the year 2013 will be tough due to high input costs,” he said.

“However, given its strong position on the local market, the expected global recovery and synergies stemming from integration with ZAP the chemicals segment may again be an important contributor to the company’s results,” he added.

From the fourth quarter of 2011 to the end of the third quarter of 2012, fertilizers accounted for 61% of the combined sales revenues of ZAT and ZAP, Raiffeisen calculations showed. Plastics accounted for 22% and oxo-alcohols 9%.

Yara's fertilizer capacities include 6m tonnes/year of nitrogen fertilizer, 5.5m tonnes/year of nitrogen phosphorous potassium (NPK) fertilizer and almost 5m tonnes/year of urea, the Austria-based bank said.

For the ZAT group, taking into account the ZAP capacities it has gained through the takeover, the figures for these fertilizer capacities are 1.9m tonnes/year, 1.8m tonnes/year (this figure actually combines NPK, PK, NP, P fertilizers) and 1.4m tonnes/year, it added.

ZAT intends to form a group named Grupa Azoty from itself and its acquisitions.

ZAT and all its subsidiaries except ZAP already use the Grupa Azoty brand name for marketing purposes.

By: Will Conroy
+44 20 8652 3214

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