European Policy Tailwinds And Cost Advantages Will Drive Long-Term Upside Potential

Catalysts

About OCI

OCI is a global producer and distributor of nitrogen-based fertilizers and ammonia products, with a focus on European nitrogen assets and value-focused capital allocation.

What are the underlying business or industry changes driving this perspective?

• Supportive European policy developments, including the European Commission antidumping proceeding on Russian urea and a strengthening regulatory framework for regional industrial competitiveness, are expected to firm pricing and volumes for nitrogen products, lifting revenue and stabilizing EBITDA.
• OCI's European ammonia and nitrogen facilities operate in the first quartile of the cost curve with industry-leading conversion rates, which positions the company to capture market share and pricing power as higher cost capacity rationalizes. This supports margin expansion and long-term earnings growth.
• Expected reversion of European natural gas prices toward historical norms materially improves input costs for nitrogen production. This should widen gross margins and contribute to a recovery in segment-level EBITDA and net income from currently depressed levels.
• The Beaumont New Ammonia project, now in commissioning with first ammonia expected and a receivable due on handover to Woodside in early 2026, creates a visible future cash inflow and underscores OCI's ability to monetize large-scale clean ammonia investments, which may enhance future cash flow and earnings quality.
• The ongoing strategic review of European nitrogen production and distribution assets, combined with a potential combination with Orascom Construction, provides multiple avenues to crystallize underlying asset value above current trading levels. This may help unlock hidden equity value and could support earnings per share.

Assumptions

This narrative explores a more optimistic perspective on OCI compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming OCI's revenue will grow by 7.6% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -33.0% today to 4.3% in 3 years time.
• The bullish analysts expect earnings to reach $55.0 million (and earnings per share of $0.22) by about December 2028, up from $-340.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, up from -2.1x today. This future PE is greater than the current PE for the GB Chemicals industry at 16.9x.
• The bullish 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 5.97%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent cost inflation in European natural gas or renewed energy price spikes could prevent margins from normalizing to the assumed mid cycle levels. This has been evidenced by the recent 38% year on year increase in gas prices that cut European Nitrogen EBITDA to $21 million despite higher revenues, which would pressure both gross margins and earnings.
• Operational disruptions such as the planned and unplanned maintenance that already hurt segment profitability in the first half of 2025, combined with construction delays and the $98 million cost overrun at Beaumont New Ammonia driven by adverse weather, signal execution risk on large industrial assets that could reduce production availability and depress EBITDA and net income.
• Strategic uncertainty from the ongoing review of European Nitrogen assets and the contemplated merger with Orascom Construction, including potential asset sales and a change of listing venue without a required cash component, may lead to suboptimal deal terms for minorities or misaligned capital allocation. This could cap valuation multiples and limit per share earnings growth.
• Heavy reliance on one off strategic transactions, such as the sale of the methanol business and large shareholder distributions that have largely exhausted fiscal reserves and strategic review proceeds, may leave a smaller, less diversified platform exposed to cyclical downturns in nitrogen and infrastructure markets. This could constrain future cash flows, dividends and balance sheet strength.
• Unresolved contingent items and complex legacy files, including the Fertiglobe contingent consideration and various indemnifications and post closing adjustments, may take longer to crystallize or result in lower than anticipated cash inflows. This would weaken the assumed cash generation profile and could limit the company’s ability to sustain improved net margins and earnings over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for OCI is €4.97, which represents up to two standard deviations above the consensus price target of €3.91. This valuation is based on what can be assumed as the expectations of OCI's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.97, and the most bearish reporting a price target of just €2.95.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $55.0 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 6.0%.
  
• Given the current share price of €2.9, the analyst price target of €4.97 is 41.6% 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.