The Moscow Exchange Index continues to decline, but there is one security in its composition, which still shows an increase since the beginning of the year. Let’s evaluate its prospects.
Unique Exception
As of August 4, the Moscow Exchange stock index has been losing regarding 45% since the beginning of the year. There are obvious outsiders from the metallurgical and financial complexes with losses of 60-80%. About half of the papers are trading better than the market. But there is only 1 out of 41 stocks, which among the companies of the index is still confidently in a solid plus.
This is regarding PhosAgro: +22% since the beginning of the year, +55% for the last 12 months and +200% for three years. In fact, the stock has been defensive throughout the year in an era of stock market turbulence and loss of familiarity.
Despite the crisis in international relations and the still difficult domestic economic agenda, the following stand out in the case of a global fertilizer producer: factors of investment attractiveness:
— Against the backdrop of international food crisis, when the cost of the main food basket hit historical highs in June (+60% in two years), it is natural that fertilizers were in high demand, and the shares of manufacturing companies were in the spotlight of the exchange community. Although now the individual elements of the FAO basket have already significantly sank in price from the peaks, which somewhat restrains the agility of the stock bulls, but consolidation is underway in the securities.
— The unique position of the company on the world stage is also connected with the ongoing energy crisis. Domestic energy prices are significantly lower than world prices, which makes our exporters more competitive in terms of costs. The company’s cost growth rate is two times lower than the revenue growth rate – the “golden rule of the economy” is respected with a significant margin. Last year’s net profit showed a growth rate of 202%.
This year’s double-digit supply losses in the European market are offset by relatively high fertilizer market prices and offset by a 2.5-fold increase in product exports to Asia. The deterrent in the company’s case is a strong ruble.
— Despite the apparently stable financial position, the meeting of shareholders had not previously approved the payment of dividends, and the negative reaction in the papers was fleeting. At the same time, the head of the company a little later declared regarding the possibility of payments in the future. The dividend payout factor is particularly painful for investors this year, but positive dividend expectations keep PhosAgro’s stock high.
— Geopolitics does not bypass PhosAgro either. However, the inclusion of co-owner Guryev in the US sanctions list should not affect the company’s operations. Moreover, the states under a general license ruled out any sanctions on the production, manufacture, sale and transportation of Russian mineral fertilizers. And this means maintaining the position of the exporter on the continent and not expanding the sanction risk premium in the company’s securities, unlike a number of other Russian shares.
— The technical picture on paper is still positive. The global uptrend continues. However, in the last three months, the stock has been moving in a wide range of 7,000–8,000 rubles, from time to time going beyond the boundaries of the corridor, but quickly returning to it.
Now there is a consolidation at the lower border of the range – and in case of going under it, there may be risks of not returning to the usual course of the last quarter. In this case, you need to be ready for a temporary trip to the lower support of 6,000 rubles, which will increase the attractiveness of investing in paper. In the meantime, we are following the next mining of 7,000 rubles, and yet there is a possibility that with a general improvement in the atmosphere on the market, interest in the defensive asset will decrease somewhat.
BCS recommendation: Sell. Goal for the year 6300 rubles. / -12%.
BCS Investment world
