On Monday, CFRA maintained its Sell rating on shares of Yara International ASA (OL:YAR:NO) (OTC: YARIY (OTC:YARIY)) with a price target of NOK300.00, citing continued market challenges and price volatility. The firm's assessment follows a period of declining revenues for the company, with the second quarter of 2024 showing an 11% drop in revenue due to lower prices, despite increased deliveries.
Yara International's financial performance in the second quarter reflected a broader trend that began in 2023, with price decreases outpacing the growth in global product availability.
The firm noted that while the second quarter EBITDA, excluding special items, improved by USD260 million year-over-year, this was largely due to higher deliveries and improved margins, as well as the impact of inventory write-downs and a weaker market environment in the previous year.
Despite the year-over-year improvement, CFRA anticipates only a modest rise in EBITDA for the full year of 2024. The analyst firm has adjusted its earnings per share (EPS) estimates for Yara International for 2024 and 2025 to USD1.70 and USD2.40, respectively, down from previous estimates of USD2.00 and USD3.00.
The Sell recommendation is supported by the belief that uncertainties in supply and demand dynamics, along with price spikes, warrant a discount in the valuation, reflected by an EV/EBITDA multiple of 5.7x the projected 2024 EBITDA.
The price target of NOK300 remains unchanged from the previous forecast, as CFRA sees limited improvement in volumes in the latter half of the year due to the normalization of inventory levels within the industry. This outlook suggests a cautious perspective on the company's near-term growth prospects amid a challenging market landscape.
In other recent news, Yara International ASA has unveiled a significant cost-cutting and growth strategy during its second-quarter earnings call. The fertilizer company plans to slash fixed costs and capital expenditures by $150 million each by the end of 2025.
Yara's CEO, Svein Tore Holsether, underscored the firm's focus on core operations and strategic priorities, aiming to boost shareholder value. The company, currently reporting a return on invested capital of 6.1%, expects to see an improved financial position through cost reductions and a tightening nitrogen market.
Yara is also contemplating restructuring or divesting lower-return assets and has already reduced net debt to just below $3.6 billion. The company reported a 26% increase in ammonia production in the first half of 2023 and plans a 2% improvement in ROIC by the end of 2025. Furthermore, Yara has teamed up with PepsiCo (NASDAQ:PEP) Europe to supply low-carbon crop nutrition products.
These developments are part of Yara's broader strategy to focus on core business operations and key strategic priorities to improve returns. With a strong ammonia production system, the company is well-positioned to benefit from a tightening nitrogen market and sees significant potential for growth, particularly in evolving global energy systems.
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