ICL Group Stock: Remarkable Dividend That Seems Solid (NYSE:ICL)

Funding Abstract

ICL Group Ltd (NYSE:ICL) is an organization within the fertilizer market providing a broad array of merchandise and options to industries like agriculture, meals, and engineered supplies. With operations in additional than 30 international locations, ICL supplies a various vary of merchandise, together with fertilizers, potash, and bromine compounds.

Many firms within the fertilizer market usually are not seeing the identical ranges of revenues as they did a yr in the past as the costs have gone down considerably. The war in Ukraine helped push costs to new highs and corporations like ICL had been capable of profit tremendously and construct up their steadiness sheet and supply worth to shareholders via dividends and buybacks. The corporate managed to generate document working money flows of $382 million within the last quarter which actually makes them capable of sustain the strong dividend yield, which is above 15% proper now. Financially the corporate is sound and so they have room to develop. The excessive yield would not scare me and ICL is a purchase for me proper now, that means I’m conserving the identical ranking as final time regardless of the share decline.

Is The Dividend Sustainable

One of many components about investing in ICL is probably the dividend. It sits at a TTM yield of round 15% proper now. The corporate introduced a dividend of $0.11 per share within the final report. I believe we must be reasonable right here and understand that the dividend of 15% proper now just isn’t more likely to stay for my part. The corporate has seen regular development over the previous couple of years, however as the costs of fertilizers are a lot much less favorable than a yr in the past I do not see the identical yield being doable.

At the very least not the 15% we now have within the final 12 months. However a quarterly dividend of $0.11 for 2023 could be $0.44 in complete, or round 7 – 8% if the share costs keep across the $6 mark. That isn’t a nasty dividend in any respect. The place I believe there may be additional worth available is that ICL will proceed rising its revenues and that in flip ought to assist the underside line develop. The ahead p/e being round 7 presents little threat right here for my part. The corporate is estimated to generate between $2.2 billion and $2.4 billion of adjusted EBITDA for 2023, a notable lower from 2022 which had it come it at slightly below $4 billion. However as talked about, costs are a lot much less favorable now and are more likely to proceed entering into cycles like these. However the total pattern appears clear, and that’s fertilizers will play a significant position for many years in our meals programs throughout the globe.

The corporate is targeting an EBITDA margin in 2027 of 28%, which is much from the 2022 margins which had been at 40% at their highs. I do not assume it is possible we see margins like that once more within the close to time period, however a 28% margin, and near $13 billion in projected gross sales would imply round $3 billion in working money flows if the margins maintain. With if the corporate will get to a dividend of round $0.44 for the complete yr of 2023, that may be slightly below $600 million in capital disturbed if the shares stay the identical. I discover it possible the corporate can proceed with the dividend and maybe increase it going into 2027 as effectively. Growth appears to be robust and with the low valuation, there appears to be little draw back getting in at these costs. The dividend in my thoughts will be sustained across the 7 – 10% yield with out risking the corporate having to dilute shares or defaulting on any debt.

Dangers

The seed safety trade faces a possible threat because of the rising recognition of genetically modified [GM] crops, which possess built-in resistance in opposition to pests and illnesses. Whereas this pattern could cut back the demand for seed safety merchandise, it additionally presents challenges for the trade. Developing new GM crop varieties that may successfully fight rising pests and illnesses requires substantial funding in analysis and improvement. Nonetheless, the widespread adoption of GM crops continues to be sooner or later, and within the meantime, there’s a urgent demand for fertilizers, presenting a chance for firms like ICL Group to fulfill this want.

Analyzing ICL Group extra carefully, it is essential to contemplate the corporate’s long-term debt, which stands at round $2.3 billion. Managing this debt burden will stay a problem for the corporate. Nonetheless, I consider that ICL Group is taking proactive measures to remain forward by capitalizing on the numerous money flows it presently generates. However, there’s a larger threat of share dilution if any disruptions happen within the manufacturing chain, resulting in elevated prices. To be able to safe its money place, the corporate could resort to diluting shares, which might negatively influence funding within the firm.

General, whereas there are specific dangers to be aware of, ICL Group has the chance to leverage its strengths in assembly the fast demand for fertilizers and capitalize on its robust money flows. By strategically managing its debt and manufacturing chain, the corporate can mitigate potential challenges and proceed to thrive within the trade.

Financials

Transferring over to the financials of the corporate they’ve made some strikes that I notably wish to see. The money place has risen by 32% on a QoQ foundation, reaching $552 million in complete. It is not sufficient to repay all of the short-term debt, however with the money flows to again it up the $704 million in short-term debt is making the corporate dangerous proper now.

The truth is, the corporate has almost 2x as many complete property as complete liabilities and with robust money flows the monetary state appears very strong and locations the corporate able the place they’ll each make investments closely and likewise proceed distributing a dividend, or enter into essential partnerships. The long-term money owed are sitting at $2.2 billion proper now and with the projected working FCF I had of $3 billion in 2027 that appears very manageable. Shares excellent have risen slowly over time, however I believe as costs stabilize and the identical occurs to the margins within the enterprise the probability of dilution rushing up is low for my part.

All in all, I do not see any alarming indicators on the steadiness sheet, in actual fact, I believe they’re in a powerful place to proceed rising leveraging their versatile state. The money place improve is a significant bonus and going ahead I’ll regulate the lower of present liabilities and look so it would not end in elevated share dilution.

Valuation & Wrap Up

With a ahead P/E of round 7, I do not see ICL as a dangerous funding right here. The yield may make ICL appear like a really dangerous funding and the chart would inform the identical story. However as we all know, the fertilizer costs that had been seen in 2022 simply weren’t sustainable and that creates uncertainty in regards to the firm’s ahead earnings after all. With ICL I believe they’re in a powerful place to develop each their prime and backside line effectively over the approaching years. The 2027 goal of almost $13 billion in gross sales appears very a lot inside attain. Main up till then I believe the corporate can provide buyers a whole lot of worth, most notably the dividend, which I believe can keep round a 7 – 10% yield sustainable if the share value would not rise from right here. The money flows are robust and so is the steadiness sheet.

I see the fertilizer market experiencing a whole lot of development within the coming years and I might wish to be in a strong firm like ICL then to profit from it. ICL is just like the final time I wrote about them nonetheless a purchase for me.