On Friday, Redburn-Atlantic initiated coverage on Yara International ASA (OL:YAR:NO) (OTC: YARIY (OTC:YARIY)) stock with a Sell rating and a price target of NOK 250.00. The firm outlined concerns over the company's position as a marginal cost producer, especially after a structural increase in European gas prices. This situation has led to squeezed margins and uncertainty regarding Yara's future operating rates.
The analyst from Redburn-Atlantic highlighted that Yara's profitability is at risk as fertilizer prices are expected to converge to marginal costs heading into 2025. The forecast for the company's 2025 adjusted EBITDA is approximately 25% lower than the consensus estimate. The firm believes that current consensus estimates do not fully account for the challenging demand environment or the potential downside risks to nitrate premiums.
Looking further ahead, the analyst pointed to regulatory changes as additional challenges for Yara International. The rollout of the EU Carbon Border Adjustment Mechanism (CBAM) and the phase-out of free emissions allowances are anticipated to create headwinds for both volumes and margins. These factors are expected to contribute to a decline in earnings and valuation multiples for the company.
Redburn-Atlantic's price target of NOK 250 implies a 28% downside to the current share price of Yara International. This assessment reflects the firm's cautious stance on the stock, considering the various pressures facing the company in the near and longer term.
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