JPM cuts Yara on cyclical, structural headwinds
May 13 (Reuters) -** J.P.Morgan downgrades Norwegian fertilizer maker Yara YAR.OL to "underweight" from "neutral" citing near-term cyclical and structural mid-term headwinds
** As seasonal improvement in demand winds down and other specific headwinds come into focus, JPM sees the nitrogen pricing outlook for the rest of 2024 and likely also for 2025 looking "tougher" than reflected in consensus
** Hence, it cuts its Q2/2024/2025 adjusted EBITDA estimates by 35%/26%/24%, respectively
** JPM flags also some structural concerns associated with 60%+ of Yara's global production footprint being in Europe, which is at the top-end of the nitrogen cost-curve due to relatively high energy prices at the continent
** The company might need to adapt its European production footprint which might require material cash restructuring costs, it points out
** The brokerage expects capex over the next 2-3 years likely to be high driven by increasing decarbonization and growth capex
** For the above reasons, JPM sees FCF and Return on Invested Capital (ROIC) profile to be weak over the next 2-3 years
** Out of 20 analysts that cover Yara, seven rate it "strong buy" or "buy", seven rate it "hold", and six rate it "sell" or "strong sell"
Reporting by Marta Frąckowiak
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