Rumors about the return of the Belarusian Potash Co., and its cartel-like market-dominant position, have the potential to shake the agricultural industry. Agrium (AG) is however, somewhat safe from any cartel return. The telling evidence can be found at Barclays’ analysts' new stock price projections of $113, $7 up from original estimates, made public on the first week or March. Moreover, analysts at Susquehanna raised stock target prices by $5 to $115 at the end of February. Whether this projections will become a reality is hard to say, but there are many signs that point in that direction.
Management: Recognition and Shuffling
The first key to growth is management. If the people directing the company make the right decisions, business opportunities are more likely to be generated and exploited. There are many ways to assess the quality of those directors; one is the number of boards a member takes part on. In other words, are any of the directors invited to join in boards at other companies?
In the case of Agrium, David Everitt has been selected as interim president and chief executive officer for Harsco Corporation after Patrick Decker stepped down to become CEO of Xylem Inc. "We are pleased that Dave has agreed to assume the role of interim president and CEO and are confident that his expertise as a successful senior executive will allow us to effect a seamless transition as we search for a permanent CEO," said Henry Knueppel, chairman of the Harsco board of directors.
Another indicator of good management is timely retirement. Michael Wilson’s departure at the beginning of 2014 is a clear example. Helped by surgical acquisitions, Mr. Wilson has tripled total sales for the company. He will be succeeded by Chuck Magro who is expected to continue the small tuck-in acquisitions model, displaying another good management characteristic: continuity.
Piece by Piece
Diversity can play into a business model, and at the same time destroy that model. In the case of a possible reappearance by Belarusian Potash Co., diversity will play in favor of Agrium because potash only counts for 15% of total products and services, while retail counts for 43% and nitrogen 34%. And with presence in all the most important markets of each continent, diversity also characterizes geographical presence.
Given Agrium’s global presence, political turmoil is a threat to operations. So far, the company has been immune to widespread protests in North Africa and Ukraine. Hence, retail operations are expected to remain fully operative across the globe.
Additionally, acquisitions continue to expand a business model that expects strong corn and cotton seed sales based on a favorable outlook for prices and seeded area. To serve a greater demand the Saskatchewan potash facility is under expansion, a nitrogen facility project in Argentina is close to completion and the Borger, Texas, facility expanded, while the Kenai, Alaska nitrogen facility is under evaluation for a possible restart.
Isolation and Absorption
The greatest achievement by Agrium’s management is the isolation from current political upheaval and the ability to absorb market synergies. Whether MWQ Managers foresaw the current scenario is hard to tell. What is certain is that the stock purchase completed throughout the last quarter of 2013, granted the guru a leading position that is paying returns in the short-term.
Currently trading at 13.1 times its trailing earnings, the stock carries a 13% discount to the industry average. And although financial indicators like revenue and net income seem to have reached its ceiling, current political and climate factors are set to configure a favorable context for the long-term. Additionally, operating margins remain above 10% while cash flow continues to add nip tuck acquisitions while rewarding shareholders.
Disclosure: Vanina Egea holds no position in any of the mentioned stocks.