Undervalued Agrimin developing world’s largest undeveloped SOP deposit

Published at Sep 12, 2016, in Features

The last five months has been a period of transition for emerging Sulphate of Potash (SOP) producer, Agrimin (ASX:AMN). To provide some background, SOP is a specialty fertiliser with excellent market fundamentals and limited options for global supply growth.

As such, AMN is leveraged to increasing global food demand and the challenge of achieving food security. The Mackay SOP project is the world’s largest undeveloped salt lake SOP deposit and comparable to major SOP producing salt lakes.

As AMN confirmed positive geotechnical results regarding its Mackay project located in Western Australia, the company’s shares surged 25% from 13 cents to 16 cents.

The share price kick following the return of geotechnical results proved to be just the start of a much more significant rally as the company hit an all-time high of 57 cents. The 250% share price increase was supported by a number of promising developments, culminating in the completion of a scoping study in late August.

This underlined some compelling financial data surrounding the project, prompting management to progress to a pre-feasibility study.

It was also the catalyst for Julian Lake from Euroz Securities to initiate coverage of the stock and he has a speculative buy recommendation on the company with a price target of $1.00 per share, representing a premium of approximately 100% to Friday’s closing price of 49 cents.

It should be noted that previous trading patterns are not an indication of future share price movements, and as such shouldn’t be used as a basis for investment. Also, broker projections may not be met and investors should seek independent investment advice in relation to any of the companies mentioned in this article.

Lake’s price target appears conservative if anything given that it implies an enterprise value to EBITDA value of approximately one. As a means of comparison, the global EV/EBITDA ratio relative to fiscal 2018 projections in the agricultural inputs sector is 8.6.

The average EV/EBITDA ratio for ASX listed stocks Nufarm, Elders and RuralCo Holdings is 7.5. Looking at a closer comparison in Avenira (ASX: AEV), which is yet to come into production, its EV/EBITDA is 4.7 based on the projections of Mark Fichera from Foster Stockbroking.

While Avenira will come into production earlier than AMN, Friday’s closing price of 49 cents implies an enterprise value of circa $64 million with the company having net cash of $3 million. This represents an EV/EBITDA ratio of circa 0.5, implying a discount of nearly 90% compared with Avenira.

Consequently, a share price at least in line with Lake’s target seems appropriate with the potential for upside as milestones are met and the project is derisked.

Again past performance is no indication of future performance and professional advice should be sought if considering AMN for your portfolio.

The prospective timeline for these events is outlined below.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of Maven Capital Pty Ltd (AFSL No. 418504). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

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The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

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