BARCLAYS INITIATES COVERAGE OF AGRIUM WITH OVERWEIGHT RATING

Barclays Capital initiated coverage of the North American fertilizer sector Wednesday, taking a particularly bullish outlook on Agrium Inc.

(AGU/TSX)

While Barclays was neutral on the sector in general, it said that Agrium’s strong diversification and growth warranted an overweight stock rating.

“Agrium offers diversification not only by producing all of the big three fertilizer nutrients of nitrogen, phosphates, and potash, but also through its marketleading Retail presence across North America, South America, and Europe,” said Barclays analyst Matthew Korn.

Agrium’s retail unit has recently gained attention after hedge fund Jana Partners LLC went public with proposal to spin off the business. Michael Wilson, Agrium’s CEO, has rejected the proposal.

Mr. Korn of Barclays Capital doesn’t touch upon the dispute, but he points out that Agrium already runs the retail division as an essentially separate unit. But he points out that there is synergistic value between the two, given that Agrium builds customer relationships and can test new products through the retail segment.

In addition to the strength of the retail segment, Mr. Korn said Agrium is well positioned in the next few years because of its leverage to nitrogen fertilizer.

“We believe global ammonia/urea supply will prove to be tighter over the next several years than currently thought by the market,” he said, referring to two fertilizers that use nitrogen. “This, together with the lift we see coming in 2H12 and 1H13 fertilizer demand (for nitrogen in particular) driven by this year’s heavy drought damage to the U.S. corn crop, we consider the near/medium term pricing outlook to be very strong.”

He currently has a price target of US$111 for Agrium (the target is for shares listed on the New York Stock Exchange).

John Shmuel, Financial Post AGRIUM AGU/TSX,

$97.71, up $1.78