Upgrade in Fertilizer Stocks Surpasses Rosey Expectations 19 comments
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Thanks to a reader who sent me one of the 2 analyst reports. Some good info out there (including risks from rising natural gas and sulphur) but the earnings upgrades are astounding. I wrote back in October the analysts have been wrong, and continue to be wrong on their estimates [Oct 23: Analysts Still Doubting the Fertilizer Stocks]. Now, prices have even surpassed my rosy assumption, so even I've been wrong in my estimates for the future - I was thinking $9.00+ EPS for Mosaic in 2009 (current consensus $7.40). Merrill Lynch just blew me out of the water. This is why I keep saying forget basing these on analyst estimates - they are sorely lacking...
Mosaic (MOS)
2009 (old) $7.65 (new) $12.00
2010 (old) $8.30 (new) $14.50
Potash (POT)
2009 (old) $9.80 (new) $14.002010 (old) $11.00 (new) $16.00
CF Industries (CF)
2009 (old) $13.00 (new) $18.00
2010 (old) $13.00 (old) $20.00
And with that... I think analysts have finally gotten the picture... finally.
....these numbers continue to make the frantic hang wringing over input costs that cause these stocks to continuosly sell off simply silly. Stick with fertilizer and stick with Cram.... err, umm... well stick with fertilizer...
Disclosure: Long all names mentioned in fund; long Mosaic in personal account
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This article has 19 comments:
With the high yield hybrids for corn, more N is needed for more bushels per acre...and that is the farmer's goal, more bushels per acre.
What the city guy does not understand is that despite the ups and downs in corn price, all these prices are sky-high for the farmer and will not affect how much fertilizer he buys because the lack of fertilizer lowers his bottom line....one farmer's opinion.
Thanks
I have updated my website link to my KCL discussion board.
It happens to be my favorite junior fertilizer company. I have owned it for over a year now. They have significant land position in Saskatchewan and a defined potash resource right next door to Mosaic's Belle Plaine solution mine. Anyone owning Potash One now will be very happy in the next few months and years.
Any thoughts about the truth of this FAO report?
pot closed friday at 172
still along ways too go in fertilizer stocks
The FAO report reminds me of the statements we would never see $100 oil. I am sure you could find all kinds of old reports predicting base metal supplies to outstrip demand, look what happened to them. I am betting the estimate of 1.9% growth in demand for fertilizers is low. More fertilizer supply coupled with high prices for food and biofuels will create even more demand. There is only so much productive land to go around. The growth in Agrium's earnings puts their shares at just 11.7 times this year's earnings forecast, well below the S&P 500 index median of 14.3. Now is the time to be invested in these companies before the real mania starts, thats the time to take profit.
By Michael J. DesLauriers
27 Mar 2008 at 11:45 AM GMT-04:00
TORONTO (ResourceInvestor.com) -- The latest big story, in terms of serious overriding trends in the resource side of the equity markets, is the facilitation of the feeding of the worlds major emerging economies, as their collective standard of living leaps smartly ahead, along with their GDP numbers. The impact of this seemingly obvious (in hindsight) evolution is a massive surge in food prices to the end user, and in the soft commodities, as ten’s of millions of Chinese and Indians move up the ‘food’ chain, well on their way to western habits of consumption.
Given how long this eastern story has been on our radar screens, it’s rather surprising how few commentators on the resource space have really paid attention to this obvious, eventual part of the equation until very recently - and how much has been left on the table as a result. That having been said, this game is still new, and opportunity abounds.
This fact can be witnessed in the recent upgrade of a C$50 billion dollar company, Potash Corp of Saskatchewan [TSX:POT]. While it is not uncommon for a major bank to upgrade a senior story, it is extremely uncommon for a major bank to upgrade one (with a C$50 billion market capitalization already), to a target price which is a whopping 60% higher than the story’s latest close – in this case a C$250/share target on a company trading at C$150 and with a 52-week low of just C$60.
In view of this meaningful upward realignment on the biggest name in the sector, the clear opportunity for the smaller, more nimble and levered players, is massive. This is true not only because of rising prices, but because of the an insatiable global appetite, a seven plus year lead time to new supply (if one were to start today), but particularly because of a critical dearth of equity product to feed ‘hungry’ investors, at a time when a hot space is nearly impossible to find and levels of confidence in even the so-called safest of sectors is running scarily short.
Further, when one looks at the recent auction of a Russian potash mine on the order of 600 million tonnes yet to be developed which sold for about US$1.20 per tonne according to Bloomberg and analyst sources, it is clear that the smaller listed Canadian potash plays are heavily undervalued still as plays like Anglo Potash [TSX-V:AGP] are trading at less than 50 cents per tonne of potash in the ground.
The recent marketing of Western Potash, a newcomer in Manitoba that should list in the coming days, we are told was very positive especially given general market conditions. The issue was oversubscribed and flew out the door at the top of the range suggesting a valuation in the area of almost C$200 million post IPO finance.
Mag Industries [TSX-V:MAA] spinout of its potash assets in the French Congo was also very bullish for potash as the suggested valuation approaching US$500 million for a large potash deposit in an African country tells us that investors both institutional and retail are not yet sated and continue to look longingly and ravenously at potash plays.
This market has room to move substantially higher because it will be years before the supply/demand imbalances repair themselves.
By David J. DesLauriers
13 Feb 2008 at 03:27 PM GMT-05:00
TORONTO (ResourceInvestor.com) -- Anyone who watches Business News Network or can follow a chart knows that potash is a hot commodity and that listed potash equities are equally hot.
The reality for investors is that there are very few ways to play potash – and it is not going to be a situation like the uraniums where all of a sudden we have even, in this case, more than 25 juniors.
Currently Potash One [TSX-V:KCL], Athabasca Potash [TSX:API], Anglo Minerals [TSX-V:ALM] and Raytec [TSX-V:RAY] are to our knowledge the only ways to play potash unless you want to buy the majors like Potash Corp of Saskatchewan [TSX:POT] or Agrium [TSX:AGU].
Saskatchewan’s potash belt which is host to 9 mines and 32% of the world’s annual potash output has now been completely staked (not one more claim available in the belt as of last Friday) – but there are only around 10 companies that control that acreage:
Anglo Minerals [TSX-V:ALM]
BHP [NYSE:BHP; LSE:BLT; ASX:BHP]
Kennecott (Rio Tinto Group [NYSE:RTP; LSE:RIO; ASX:RIO])
Agrium [TSX:AGU]
Potash Corp of Saskatchewan [TSX:POT]
Athabasca Potash [TSX:API]
Potash One [TSX-V:KCL]
Mosaic [NYSE:MOS]
Saskatchewan Syndicate
Canada Potash Corp.
Raytec [TSX-V:RAY] and a few other small juniors
In scanning the list, only Canada Potash Corp and the Saskatchewan Syndicate, who collectively control nearly half the belt, or 5 million acres, are not public. It is also known that neither of these groups have any intention of piecing off their acreage to juniors – they are going to keep them within their own respective vehicles.
What this means is that the next couple of stories to market are going to be met with an exceptionally warm reception and robust valuations. Currently listed plays (see above) are already doing extremely well and only one company on the above list isn’t a producer, a conglomerate or a player with a market capitalization in the centi-million range.
That story is Raytec, which is up today trading at around 65 cents per share. We believe the company will be able to do a financing here shortly that will position the appropriate institutions. Factoring in a financing the company probably has a C$25 million market capitalization fully diluted at current prices.
Given the lack of product, the high demand for potash itself and for investment product, it is highly likely that Raytec will pop to the C$1 mark here in short order.
The opportunity is therefore both speculative and fundamental, with short and long term potential appreciation for shareholders. Given the lack of product and the degree to which the space is in favour, the prospect of names such as this popping in a vacuum is substantial. We believe that the potash trade is only just getting started, and as previously pointed out, is unique because not only does the underlying commodity have rising price action, but unlike any other precious metal, base metal, or mineral play that we’ve seen in this cycle, the universe of product for public investors is tiny – and it takes 7 years and a couple billion dollars to build a new mine.
Despite handsome runs across the board, recent retracements are a buying opportunity and going forward, most retracements will be buying opportunities in the context of the greater potash bull and its certain longevity in light of supply and demand realities. As the story really gets out there, the most levered players could deliver spectacular returns.