Intrepid Potash: Strong Quarter but Questions Remain

Intrepid Potash (IPI) which I deemed would be the hottest IPO of 2008 [Apr 18: You Thought Visa (V) was the Hottest IPO of 2008?] has it's first earnings report as a public company and the results are as expected - very good.

This quarter is very understated versus what "market prices" for potash now bear as the company was selling potash (70% under previously-negotiated contracts it appears) at average $325; some market pricing is double that now.

• Intrepid Potash, Inc. (NYSE:IPI - News), the successor entity to Intrepid Mining LLC, today announced first-quarter 2008 results with net income of $33.1 million, compared to last year’s first quarter net income of $6.4 million and exceeding full-year 2007 net income of $29.7 million.
• On a pro forma basis, assuming a 38.5 percent effective tax rate and the pro forma diluted current share count of 74.8 million common shares for Intrepid, pro forma net income per share would have been $0.27 per share in the first quarter of 2008 as compared to $0.05 per share in the first quarter of last year.
• During the first quarter, Intrepid produced 224,000 short tons of potash, a 3 percent increase over the 218,000 short tons produced during last year’s first quarter. First and fourth quarter production typically exceeds second and third quarter production as a result of the evaporation cycle at our solar facilities that occurs primarily in the spring and summer months.
• Intrepid sold 213,000 short tons of potash in the first quarter at an average FOB the mines or net sales price of $295 per ton as compared to 209,000 short tons at an average FOB price of $178 per short ton during the first quarter of 2007. Intrepid reports tons and per ton price and cost data in short tons; converting our $295 per short ton price to metric tonnes (“tonne”) would be the equivalent of a $325 per tonne first quarter average FOB price. The $117 per short ton increase in selling price was achieved despite having committed approximately 70 percent of our first quarter sales volumes at guaranteed prices that were primarily negotiated in September 2007, before the significant increases in potash pricing.
• Our posted price for red granular FOB Carlsbad has increased progressively in each month of 2008 from $317 per short ton at the end of 2007 to $357, $397, $417, $503, $532, and $582 per short ton for January through June, respectively. We estimate that every $10 per ton increase in the price of potash will have a pro forma annual earnings impact of approximately $0.07 per share. (quite staggering when you think about that level of increase)

Now the company does not indicate in future guidance how much of their future production is already under contract (at lower prices) versus open to being sold (at much higher prices), so it's hard to estimate the future prospects. However, it is safe to say that analysts are understating the growth. They are going to be able to do almost 900K (short) tons for the years, but the question is are they getting $300, $350, $400, $450, $500, $550 etc, and when the price increases will begin to show up (which quarters?).

Without that sort of specific guidance, it is hard to make a judgment.... perhaps in the conference call they'll give more detailed info. But based on their guidance for every $100 increase in pricing they will derive an additional 70 cents a share.

Disclosure: I do not own shares of Intrepid (yet)

Comments

[Adesai:]

Trader Mark,

I read your posting of "you thought visa was hottest IPO..." and b/c of that post i actually invested alot of $$$$ in this company. I want to ask you a question, if you thought this was a hott company then why havent you invested in this company.

I had the same question as you did.....what % of contract are already agreed upon and at what price. With 70% of contract made in sept 2008 when potash prices were low. Another question is when will they open up the other mines to start making production. I know in the prospective they claimed it will be open this year with production to start by next year.

With the price of potash at around $1000 by end of the year, there is alot of positive things about this company and i see this company going to $55 in next couple of months and about $65-70 by next year if the PE ratio holds up. This is a good investment and a long long term play.

2008 Jun 04 12:24 PM

[TraderMark:]

Adesai, if I had access to IPO shares I literally would of thrown everything I could into this type of name. Anyone who had IPO shares made 70% immediately. Unfortunately only those with connections gets the IPO share.

My next hope would be that it opens somewhere in the $35 range (the IPO price kept getting moved up) which I would also buy at. But as you know it opened immediately in upper $40s which was a very rich valuation based on info at IPO.

I am now looking at $3+ EPS so easy back of envelope $3+ x 20 PE = $60+

Anyone who got in at IPO would indeed of had the "hottest IPO of 2008"
I wish I had been one of those people.

2008 Jun 04 12:31 PM

[Adesai:]

I just look at the estimated earnings for 2009 which is $3.85. times 20 = $77.

I too did not get into the IPO price but from your article you mentioned the price would open up at 60. Either way i learned about this company and this IPO from you. I wanted to ThANK YOU.

2008 Jun 06 09:00 AM

[JJTERRITO:]

Right now the market is undervaluing the Ag stocks after their rise.I'm long because I think the recent correction is going to be followed by a big time buy in by the funds for their third quarter showing.

2008 Jul 05 12:19 PM