Thursday, January 21, 2010

Agruim Inc (AGU): An Undervalued Fertilizer Company (Part 1)

This is the first part of a series of posts relating to a thorough analysis of Agrium Inc. and what led to conclude that it was a company worth your attention for a further analysis.

Agrium Inc. was founded in 1931. It started out as a fertilizer company called Cominco Fertilizers, Ltd. Over the years, Cominco grew larger and larger and started to diversify its range of products. The company went public in 1993 and decided to change its name to Agrium Inc two years later. Its Headquarters are located in Calgary, Alberta.

Products & services
Agrium is one of the leaders in the sector of agricultural nutrients, industrial products and specialty products in the international market. The structure of the company is divided in three business segments: retail, wholesale and advanced technologies.

Agrium’s retail division supplies agricultural products and services directly to growers in North and South America. The wholesale division produces, markets and distributes the three primary nutrients for fertilizer production, which are nitrogen, phosphate and potash, directly to agricultural and industrial customers. The Advanced Technologies business segment, which rests on its production and sale of controlled-release nutrients, micronutrients as part of its specialty products and plant protection products such as pest control marketed to residential and commercial consumers.

As a mission, the enterprise will continue to provide ingredients for growth. Although Agrium is already one of the world leaders in its field, their vision is still to become the leading supplier of agricultural chemicals in the world. Following its IPO in 1993, the company grew by making important international investments and undertaking multiple acquisitions. For instance, Agrium owns three foreign subsidiaries that are located in Belgium, China and Argentina. In addition, important investments were made in Hanfeng Evergreen Inc (China) and MISR Oil Processing Company, S.A.E. (Egypt).

Its corporate growth strategy consists of three aspects that are: to invest through the value chain, to continue to provide with the lowest cost in the wholesale segment, and to diversify internationally. With regards to different geographical market and international opportunities, China, Brazil and India are the three major emerging markets for potash exportation; South Korea, Mexico and Taiwan are some targeted markets for nitrogen. In addition, these markets express great concern about environmental issues, and thus are prepared to pay a high price for innovative products and solutions.

The firm's market position
According the Agrium’s 2008 company fact book, the company manufactures fertilizers and crop protection products based on 3 different main chemicals: nitrogen, phosphate and potash. Most of Agrium’s competitors are also produce products that contain those three elements because they are found in all fertilizers (at least one of the three and sometimes all three). Agrium is more diversified than its competitors, producing and all three elements as well as controlling distribution channels in North America, South America and Europe. Based on output in metric tonnes, Agrium comes third in nitrogen based products with 2 403 000 tonnes. That puts it right after Yara International ASA and Terra industries inc., producing 7 032 000 tonnes and 2 519 000 tonnes respectively. For phosphate based products, Agrium comes in 4th, with a production of 720 000 metric tonnes after Mosaic Co., Potash Corporation of Saskatchewan and CF Industries Inc. They produce 4 488 000 tonnes, 2 209 000 and 998 000 tonnes respectively. Finally, Agrium is recognized as a global leader in advanced technology, innovation and environmental solutions in the agricultural industry.

Disclosure: The author has no position in AGU but intends to initiate one in the coming weeks

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