Agrium Inc. (AGU) got the thumbs up this week from Desjardins Securities analyst John Redstone, who initiated coverage on the fertilizer company, with a BUY rating and C$75.80 price target.
"Agrium is well positioned to benefit from improving fertilizer markets through its current operations and from its acquisition of CF Industries," said Mr. Redstone in a note to clients.
On the macro front, he said fertilizer markets should recover in the short term because of curtailed production, low soil nutrient levels and rising foodstuff prices. Longer term, they will benefit from rising demand from developing countries, low inventories and a limited supply-side response.
Mr. Redstone said Agrium has several key advantages to help it benefit from improving fertilizer markets, including a long potash reserve life, in-house production of ammonia, and low sulphur and natural gas costs.
"Furthermore, Agrium continues to demonstrate its determination and ability to grow by acquisition," he wrote.
As part of his bullish valuation, the analyst has included Agrium's hostile and yet unresolved bid for CF Industries (CF).
Our valuation of AGU assumes this transaction is successful, and that AGU acquires all the outstanding shares of CF for US$40.00/share (US$2.008b total through debt financing) and issues an additional 49.2m shares (on top of its existing 158.1m fully diluted shares outstanding).
We have also assumed that AGU’s estimate of US$150m/year in operational synergies is realized.
As of late June, roughly 62% of the outstanding shares of CF had been tendered to the AGU offer, but CF remains unwilling to engage in dialogue with Agrium.
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