When a company experiences an event that significantly hinders its day-to-day operations, similar to the fire Rentech Partners, LP (RNF) experienced back in November, shares tend to head down a very unfavorable path until the matter is resolved and production expectations are back on track.
In the wake of the partnerships announcement that it had completed all repairs related to last November's fire at its East Dubuque, Ill., nitrogen fertilizer facility I wanted to highlight a number of reasons why I'm staying long on this agricultural chemicals play.
#1: Recent Trend Behavior
On Monday, shares of RNF, which currently possess a market cap of $759.89 million, a forward P/E ratio of 9.34, and a distribution yield of 5.52% ($1.08), settled at a price of $19.56/share. Based on their closing price of $19.56/share, shares of RNF are trading 10.59% above their 20-day simple moving average, 0.72% below their 50-day simple moving average, and 27.57% below their 200-day simple moving average.
Although These numbers indicate a short-term uptrend and a mid-to-long-term downtrend for the stock, I actually think the current share price of $19.56 offers investors' a considerable point of entry especially since operations at its East Dubuque are getting back on track.
#2: Ammonia Production on the Rise
Rentech Partners recently announced that it had completed the necessary repairs related to last November's fire that took place at its East Dubuque, Illinois facility and also an update on both the current ammonia production as well as the month-end estimated production for January 2014. As it currently stands the facility is producing approximately 790 tons of ammonia per day and that number is expected to increase 29.11% to an estimated 1,020 tons per day by the end of the month.
If the company can meet and/or slightly exceed production estimates by the end of the month, I think it's pretty fair to say that the production that was lost as a result of the fire will have a minimal effect on the partnership's production heading to the first half of 2014.
#3: Corn Planting Forecasts Support Higher Nitrogen Demand
Between 2002 and 2012 U.S.-based corn planting had averaged 84 million acres per year and that average is expected to exceed 90 million acres per year between 2013 and 2015, which would clearly indicate a stronger demand for nitrogen-based fertilizers given the fact corn is one of the largest consumers of nitrogen fertilizer. If the demand for nitrogen-based fertilizers can increase over the next 24-36 months while the amount of corn planted averages at least 90 million acres, I strongly believe Rentech Partners could benefit quite nicely.
Risk Factors (Most Recent 10-K)
According to Rentech Partner's most recent 10-K, there are a number of risk factors investors should consider before establishing a position. These risk factors include but are not limited to:
#1 - The amount of the partnership's quarterly cash distributions, if any, will vary significantly both quarterly and annually and will be directly dependent on the performance of its business. Unlike most publicly traded limited partnerships, we do not have a minimum quarterly distribution or employ structures intended to consistently maintain or increase distributions over time.
#2 - A major factor underlying the current high level of demand for the partnership's nitrogen-based fertilizer products is the expanding production of ethanol. A decrease in ethanol production, an increase in ethanol imports or a shift away from corn as a principal raw material used to produce ethanol could have a material adverse effect on the partnership's results of operations, financial condition and ability to make cash distributions.
#3 - The market for natural gas has been volatile. If prices for natural gas increase significantly, the partnership may not be able to economically operate its East Dubuque Facility.
#4 - The markets for ammonia and sulfur have been volatile. If prices for either ammonia or sulfur increase significantly, the partnership may not be able to economically operate our Pasadena Facility.
For those of you who may be considering a position in Rentech Partners, LP I strongly recommend keeping a close eye on the company's trend behavior, its ammonia production and by how much it would benefit if an increased demand for nitrogen-based fertilizers were to occur as each of these factors could play a role in the company's long-term performance.