Fertiliser boom reveals food security price power

A top fertiliser maker has emerged as the surprise winner of Europe’s energy crisis

Companies like $12 billion Yara International (YAR.OL), which sells potash in 60 countries, were expected to be hit hardest by soaring gas prices which dictate the cost of ammonia, a key ingredient in plant food. But far from disappointing investors, on Wednesday the Norwegian company was able to boost its annual dividend to 55 crowns per share and lift its fourth-quarter EBITDA to over $1 billion, far exceeding analyst expectations.

 “Food security concerns helped Yara weather the crisis. That and a war in potash and wheat exporter Ukraine created scarcity, which drove up the price of its much-desired products”

 

Food security concerns helped Yara weather the crisis. As the company’s input costs soared, Chief Executive Svein Tore Holsether shuttered production in countries like Italy and France. That and a war in potash and wheat exporter Ukraine created scarcity, which drove up the price of its much-desired products.

That allowed Yara to hike its EBITDA margin to 20% in 2022 from 17% in 2021, excluding one-off items.

A recent retreat in European gas prices is also good news for Yara. Its farming clients will have more money to spend on fertilisers, boosting its sales. Such optimism does not appear baked into its market valuation.

Before Wednesday’s 5% share bump, it traded on just 4 times its expected 2023 earnings. That’s well below companies like American pesticide manufacturer Corteva, which trades on 11 times as it’s expected to win from an increased global focus on food scarcity. Now that Yara has proved it can weather a major crisis, this gap is likely to narrow.