Yara International: An Extra Dividend Means 9.6% 2020 Yield
Oct. 20, 2020 11:31 AM ET|5 comments | About: Yara International ASA (YARIY), YRAIF
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Summary
Yara delivered 3Q20 results today. Results were superb, and drove stock expectations up markedly.
The company announced an extraordinary dividend of 18 NOK per share, bringing the total 2020 dividend up to 9.6% yield based on a 350 NOK share price.
The company remains my largest holding in the agrarian sector, and the valuation is fair - appealing enough to buy. Buying here still means nearly a 4% yield for 2020.
Yara is a "BUY".
One of the absolute benefits of investing in geographies where companies base their recurring dividends on actual annual results is the frequency of extraordinary dividends. While I certainly do prefer a large degree of predictability, the mix of international and national stocks should, in theory, provide both an excellent baseline, with the potential for significant extra cash inflow during periods of company outperformance.
I did not expect for this to occur during the worst pandemic in decades - but that's exactly what it has for the Norwegian company Yara (OTCPK:YARIY) (OTCPK:YRAIF). I've written substantial pieces on the company before - so for a more comprehensive overview of Yara, I point you to these articles. In this article, we'll look at results, the impact of these results, and how we could consider the company going forward.
Let's get going.
Yara is restructuring globally, reinforcing its focus on the customer and driving the business transformation into the future
Yara - How has the company been doing?
Let me start by saying that it's truly enjoyable when positive forecasts for companies materialize. Regardless of sector or company, when forecasting and seeing positive trends, and these trends then materialize, there's immense satisfaction even from a hardened financial writer and investor in such things. Little did I realize, however, that these trends would come during the very first, the actual year of my investing in the company.
3Q20 was, in many ways, a record for the company.
Lower material prices, in particular nitrogens, and off-season nitrate premium pricing combined with record product deliveries, resulted in some very impressive total revenues, nearly unaffected by COVID-19.
From a negative $1.2B FCF in 4Q18 to a positive $2.49B, and positive FCF of $1.491B for 3Q20.
The company's strategy shows successful, lower costs/CapEx, and improved earnings, a rare double trend.
Overall performance was superb, especially considering COIVD-19.
(Source: Yara 3Q20 Presentation)
These results came in despite some lower nitrogen pricing. On a geographical basis, the Americas took increased deliveries of the company's products, despite impacts from lower nitrogen pricing impacting margins. Despite these negative trends, RoiC which we can see on a more general basis, is up in individual geographical segments as well, complete with EBITDA growth in Latin America and North America. Unfortunately, and as it has in all Norwegian countries, the weakness of the NOK impacted company results in the way of FX.
The increased RoiC despite, in some cases, lower margins is something we see in other segments as well, like global plants, and some segments showed straight-line improvements in the face of COVID-19. Industrial solutions delivered significant EBITDA increases and improved margins. The company's AdBlue sales and base chemicals delivered strong contributions, highlighting the company's diverse product base.
The company's improvement program is showing impressive results across the board.
(Source: Yara 3Q20 Presentation)
Despite the overall chaos in the world, Yara is not changing its investment plans, with $2.2B of planned investments for 2020-2021. The company has also managed to lower its debt through proceeds from Qafco, changes in net capital and working capital, and earnings. Current net debt stands at no more than $2.261B, which on the basis of quarterly EBITDA stands at no more than 1.0X, down from 1.6X.
The company is also active in geographies like Africa, and over the quarter and YoY, has managed to deliver them to profitability, with a RoiC of 1.2%, and EBITDA of $33M for the quarter due to premium product sales, despite lower commodity pricing levels.
Forecasts for the company remain positive, as producers have a lower-than historical stock of nitrate, which will likely lead to supply growth going into 2021 and 2022, together with a 2.7% nitrate consumption growth. Due to COVID-19, the risk to the company is a higher-than-normal project delay, but the fundamentals for the company remain rock-solid, and Yara remains in an extremely attractive position to capitalize on prospects. The company is the #1 market-leader in premium product and market presence, now has nine consecutive quarters of ROIC growth despite essentially being a cyclical, and one of the absolute lowest gearing ratios amongst its peers.
One of the biggest news for dividend investors, however, is of course this part of the press release.