Dear readers/followers,

I have been writing about Yara International (OTCPK:YARIY) (OTCPK:YRAIF) for quite some time now and it has proven to be a successful investment. With substantial growth and consistent dividends, I am a long-term holder of this sector-leading company.

After analyzing the latest quarterly report released in June, I firmly believe that Yara International offers great potential for investment, especially at or around the 400 NOK price threshold.

I personally would not consider selling my position unless the price exceeds 500 NOK, or at least starts with a “5”. However, such a scenario is currently unlikely, so I continue to hold my position in the company.

Yara International – Promising Outlook for Future Growth

Previously, I recommended buying Yara International when its stock price dropped below 400 NOK/share after the ex-dividend. My belief is that Yara will continue to pay attractive dividends despite potential income reductions. It’s important to note that the company has previously provided extraordinary payouts, which played a significant role in its high yield.

My confidence in Yara remains unwavering. It is one of the largest positions in both my commercial and private investment portfolios, representing over 4% of my total holdings. I believe in the company’s long-term profitability and solid performance in the market.

While volatility can be expected in any business, it’s crucial to assess the reasons behind price drops. Often, the reasons are not as severe or grounded as they may initially appear.

Now, let’s delve into the analysis of Yara’s performance in Q2 2023.

Positive Trends and Market Stabilization

In line with my expectations, fertilizer prices have started to decrease, resulting in a significant impact on Yara’s performance in Q2 2023. Nonetheless, Yara has managed to generate strong cash flow despite these market conditions.

Based on my research and analysis of the fertilizer industry, I anticipate stabilization and recovery of prices in the third quarter of 2023. Therefore, I do not believe that the decrease in prices during Q2 2023 marks the start of a significant downward trend.

On the contrary, the decrease in prices has led to higher volumes and increased demand for Yara’s products. In particular, the tighter Nitrogen market has contributed to positive trends.

Commodity prices have been declining, which has favorable implications for Yara. The market dynamics have changed compared to the previous year, which was characterized by exceptionally high prices. Nonetheless, Yara’s performance shows improvements in various aspects.

The company’s operations in Europe have also improved. Yara’s operations are now up to 90% capacity, with only 10% being curtailed, compared to 30% curtailment in the previous quarter (1Q23). This remarkable recovery demonstrates the positive direction of the European market.

While Yara’s financial performance may not be on par with the exceptional periods of the previous year, it remains solid. The company maintains positive EBITDA and good operating cash flows. Although ROIC has dipped to 10.5% and EPS is negative due to margin factors, the temporary share price pressure currently experienced by Yara is not indicative of product prices.

Segment results were weak overall, except for the Americas. However, the quality of sales has improved, particularly in Europe. Despite delivery shortfalls in other regions, the impressive growth in premium product sales compensates for the setbacks.

Yara continues to maintain strict financial discipline. Operating capital has been improved, with a current cycle of 98 days, aiming to reach the target of 92 days by 2025. Although there have been challenges with inventory days and slower demand recovery, the company remains confident in achieving its goals.

The company’s long-term and fundamental targets remain unchanged. Yara is well-positioned in the agricultural sector, with a strong focus on sustainable and environmentally-friendly products. These factors make Yara the largest position in my portfolios, and I do not anticipate any changes unless the share price reaches at least 500 NOK per share.

In the near term, I believe that price stabilization is more likely than substantial growth. Energy costs have declined, and global industry capacity growth is expected to be low, further improving demand conditions. However, it’s important to note that Yara’s valuation and growth are subject to the uncertainty of the current market.

Valuation for Yara International – A Compelling Investment Opportunity

Yara International remains an attractive investment opportunity, considering both its qualitative aspects and the stability it offers despite its exposure to commodities. The long-term stability of food production-related companies is projected to remain positive, and Yara offers favorable valuation multiples.

With a price-to-earnings ratio below 10x and a price-to-sales ratio below 0.5x, Yara International appears to be undervalued. The recent drop in its stock price to below 400 NOK/share presents an upside potential that makes it an excellent investment opportunity. Even with a conservative normalized forecast for 2024-2025, yielding around 50 NOK per share, an 8-10% yield is still achievable, considering the company’s dividend tradition.

Financial analysts from S&P Global have set a price range of 320 NOK to 520 NOK, with an average of 420 NOK for Yara International. While some analysts recommend holding the stock, nine out of eighteen analysts still maintain a “BUY” rating on the company.

Yara’s stock price has historically shown limited movement within its typical range, irrespective of its financial results. Therefore, I believe that the potential upside for Yara International is approximately 15% based on its high yield and strong operations. This is sufficient for both holding onto and further investing in the company.

Investment Thesis for Yara International in Q2 2023

• Yara International is one of the most appealing companies in the fertilizer industry, combining quality and upside potential.
• It remains the largest position in my portfolio due to its overall qualitative nature and long-term stability.
• Based on my assessment, Yara International is a “BUY” at the current price level.
• I set a price target of 450 NOK for the company.

My investment strategy revolves around buying undervalued stocks and capitalizing on their normalization. If a company becomes overvalued, I take profits and reallocate my investment to other undervalued stocks. I also reinvest dividends and additional savings following the same principles.

Yara International meets all my criteria, including being a qualitative company, demonstrating strong financial performance, offering a well-covered dividend, currently being undervalued, and providing realistic upside potential. A price of approximately 391 NOK/share presents an attractive proposition with a yield of nearly 16%, and even with normalization, it remains a solid investment.

Editor’s Note: The securities discussed in this article do not trade on major U.S. exchanges. Please consider the associated risks before making any investment decisions and consult with a financial professional.