Poland's Grupa Azoty likely 2014 rebound overestimated: bank

15 October 2013 11:44  [Source: ICIS news]

LONDON (ICIS)--Investors are over-estimating the improvement in the profitability of largest Polish chemical group Grupa Azoty that can be expected in 2014, an investment bank said on Tuesday.

“While we expect chemical margins to recover in 2014 from negative territory this year, we believe that the [stock] market is overly aggressive on the scale of the rebound, pricing Grupa Azoty at a 42% and 27% premium, respectively, on estimated 2013 and estimated 2014 price/earnings versus sector peers,” WOOD & Company investment bank analysts Piotr Drozd and Piotr Bogusz wrote in a report maintaing a 'Sell' rating on the group's stock.

“While we acknowledge the long-term benefits of [Grupa Azoty multi-component fertilizer subsidiary] Zaklady Chemiczne Police’s [ZChP's] vertical integration into phosphate mining, the benefits are more than priced in in light of the execution risks and high capex requirements, in our view,” they added.

The analysts also noted that they expected fertilizer prices to remain under pressure with little scope for recovery next year, given the deteriorating fertilizer market fundamentals in the second half of 2013. Urea prices are down 27% in the year to date on record Chinese shipments and capacity launches in low-cost regions.

“The recovery in chemicals is likely to be muted, with the fertilizer fundamentals remaining weak [and] the chemicals upswing is likely to be gradual and largely offset by the soft fertilizer market,” they concluded.


By: Will Conroy
+44 20 8652 3214



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