Jeff Ubben (Trades, Portfolio) is a founder, CEO and CIO of ValueAct Holding LP. Prior to founding ValueAct Capital in 2000, Ubben was a managing partner at Blum Capital Partners for more than five years. He has a B.A. from Duke University and an MBA. from the Kellogg Graduate School of Management at Northwestern University.
ValueAct Holdings LP concentrates on acquiring significant ownership stakes in a limited number of companies that it believes are fundamentally undervalued. The investment team seeks to identify companies that are out of favor, or may be undergoing significant transition. Such companies may be temporarily mispriced for a variety of reasons, including perceived unfavorable industry conditions, poor business performance, changes in management or ownership, reorganizations, or other external factors. These conditions can often result in fundamentally "good" businesses that are available at depressed valuations. The goal in each investment is to work productively with management and/or the company's board to implement a strategy or strategies that maximize returns for all shareholders.
Last quarter, Jeff Ubben (Trades, Portfolio) increased his holding in Agrium (NYSE:AGU) by 25%. As of June 30, he held 10,003,451 million shares of the company. The following chart shows his holding history in the company.
Agrium is a major producer and retailer of fertilizer. The company's business spans the crop input value chain, as it produces and distributes nutrients, seed and crop protection products and services to farmers. Agrium’s strategy is to invest and operate across the agricultural inputs value chain (fertilizer, crop protection and seed), through production, distribution and retail sales. This integrated strategy allows the company to generate both strategic and operational synergies.
In February, Agrium raised its target dividend payout ratio to 40% to 50% of free cash flow, and earlier this month it announced a 12% increase in its dividend (now $3.50 on an annualized basis). The company also plans to buy back up to 5% of its common shares over the next 12 months. According to the company’s CEO, Chuck Magro, the company expects its free cash flow generation to increase significantly as it completes its major production capacity expansion projects for nitrogen and potash this year. According to him, the higher payout ratio strikes a balance between returning significant capital to shareholders, while maintaining Agrium’s core assets and flexibility for growth.
Agrium is trading at 14.25 times FY2015 EPS estimates and has a dividend yield of 3.42%. The company's EPS forecast for FY2015 is $7.25 and FY2016 is $8.40. Out of 27 analysts covering the company, 13 are positive and have buy recommendations, 12 have hold ratings and two have sell ratings. Recently, RBC Capital analyst Chris Nocella reiterated a Buy rating on the company with a target price of $130.
GuruFocus' DCF calculator gives the company a $167 target price and a four-star business predictability rating. At current price, the stock offers a margin of safety of 38%.
Over the last 10 years, the company's revenues have grown at a CAGR of 18.20% while its EPS has grown at a CAGR of 21.60%. I believe the stock is a good buy at current levels given its good historical growth rates, improving business fundamentals and cash-flow generation, reasonable valuations and a good dividend yield.
