Research Notes
Chemical industry: 2010 dividends
| 15.04.10 |
We would like to single out Apatit and Silvinit from the chemical manufacturers with still open shareholder registers, whose preferred shares are likely to bring their holders the highest dividend yield in 2010: 7.5% and 5%, respectively.
- Many mineral fertilizer makers earned large profits in 2009 thanks to a quick recovery in demand for mineral fertilizers after a steep fall in late 2008 – early 2009.
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Based on chemical companies’ official 2009 RAS net income data and in view of the dividend payment terms defined in their charters, Apatit and Silvinit preferred shares should bring their holders the highest dividend yields of 7.5% and 5%, respectively. Taking into consideration the historical shareholder register cutoff data, we assume the cutoff date at Apatit is to be between May 7 and May 21, 2010, and at Silvinit between April 16 and May 7.
Most likely, after the cutoff, the companies’ preferred shares will fall in price by an amount equal to the future dividend size. However, we see a number of drivers that could lend short-term support to Apatit and Silvinit stock valuations:
- Prices for diammonium phosphate have advanced by 23% since late 2009 and by 70% from the 2009 record-lows, up to USD 460 per ton. This factor could serve as a powerful driver for Apatit. Since 1 January 2010, about 54% of apatite concentrate produced by Apatit has been processed into DAP under a tolling scheme at PhosAgro’s enterprises. Therefore, Apatit has itself become a beneficiary of the ongoing rise in DAP prices, unlike preceding years, when it sold a major portion of produced apatite concentrate to PhosAgro at knock-down prices.
- A surge in potash fertilizer consumption worldwide could serve as a key driver for Silvinit, as buoyant demand should enable the company to boost production and increase capacity load. According to the preliminary operating data for 1Q2010, potash output at Silvinit grew by 120% y-o-y to 1.14 mn tons. In line with our conservative estimates, potash production by Silvinit in full-year 2010 should advance by 25% y-o-y to 4.1 million tons.
We recommend investors BUY both Apatit and Silvinit preferred shares on expectations of generous dividend yields in 2009 and the further rally in the securities on the back of growing demand for mineral fertilizers.
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Sectors: Chemicals & Petrochemicals, Mineral FertilizersCompany: Silvinit