New Low-Carbon Ammonia Project In UAE Will Diversify Revenue Streams By 2025

Key Takeaways

• Strategic shipment deferral and manufacturing improvements aim to boost future earnings and revenue through enhanced production and efficiency.
  
• Cost optimization and low-carbon ammonia project to improve margins and diversify revenue, supporting long-term growth and operational reliability.
  
• External production disruptions and market dependencies create financial uncertainty, risking future revenue and profit margins.

Catalysts

Produces and sells nitrogen-based products worldwide.

• Fertiglobe strategically deferred shipments to benefit from rising prices, expecting to shift $59 million of EBITDA and $29 million of net profit from Q4 2024 to Q1 2025. This decision is expected to boost revenue and earnings in the upcoming quarters.
  
• The company has implemented cost optimization measures resulting in $50 million annualized run rate savings across spending, logistics, labor, and SG&A, likely to enhance net margins and earnings from 2025 onward.
  
• Fertiglobe is advancing its manufacturing improvement plan aimed at unlocking $100 million in incremental EBITDA by end of 2025, which should positively impact both revenue and earnings by improving production efficiency and output.
  
• The commissioning of a new boiler in Algeria is set to improve on-site power production and reduce reliance on the external power grid, enhancing operational reliability and potentially increasing production volumes, hence affecting revenue positively.
  
• The construction of a new 1 million-tonne per annum low-carbon ammonia project in the UAE underrobust double-digit IRRs could diversify revenue streams and support long-term earnings growth.

Fertiglobe Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fertiglobe's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.0% today to 11.9% in 3 years time.
• Analysts expect earnings to reach $318.7 million (and earnings per share of $0.04) by about April 2028, up from $159.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $473.2 million in earnings, and the most bearish expecting $162 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.7x on those 2028 earnings, up from 32.8x today. This future PE is greater than the current PE for the AE Chemicals industry at 25.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 20.31%, as per the Simply Wall St company report.

Fertiglobe Future Earnings Per Share Growth

Risks

• Fertiglobe's Q4 2024 revenue decreased by 28% year-over-year, and full-year revenue was down 17% compared to 2023, indicating potential challenges in maintaining or growing future revenue levels.
  
• Adjusted EBITDA dropped 45% year-over-year in Q4 2024 and 35% for the full year, affecting net margins and signaling potential underlying financial challenges.
  
• External factors such as power outages and gas shortages have negatively impacted production, which could continue to affect revenue generation and operational efficiency.
  
• The delayed resolution of Algerian gas pricing could result in financial volatility, impacting cost structures and overall earnings.
  
• Market reliance on favorable dynamics, such as current urea prices, may not be sustainable due to potential increases in Chinese exports or changes in global energy prices, risking future revenue and profit margins.

Valuation

• The analysts have a consensus price target of AED2.895 for Fertiglobe based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of AED3.36, and the most bearish reporting a price target of just AED2.4.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $318.7 million, and it would be trading on a PE ratio of 35.7x, assuming you use a discount rate of 20.3%.
• Given the current share price of AED2.32, the analyst price target of AED2.89 is 19.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.