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Nutrien: When Retail Exposure Pays Dividends

May 08, 2020 11:58 AM ETNutrien Ltd. (NTR), NTR:CACF, MOS, KPLUY, KPLUF16 Comments
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Silver Coast Research


  • Nutrien's 2020 results will be adversely impacted by lower fertilizer prices.
  • However, the retail segment inherited from Agrium will provide some stability.
  • The company intends to maintain its dividend, currently yielding 5%.

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In the current crisis, investments in retail are a cause for concern for many an investor. When it comes to Nutrien (NYSE:NTR), however, the retail segment - which involves sales to farmers - is expected to be the bright spot in a year marked by lower fertilizer prices.

The company, which just released its Q1 '20 earnings and a reduced FY 2020 guidance, will rely on the legacy Agrium business to mitigate the impact of a weaker potash segment. Nutrien expects to maintain a quarterly dividend of US$ 0.45/sh, which looks reasonable based on free cash flow projections.

Revised Guidance

The Q1 results came with a downward reduction to the 2020 guidance, to take into account the recent weakness in crop nutrient prices:

Source: Nutrien's Q1 earnings presentation

The figures above show a roughly US$ 0.3bn decrease in EBITDA vs previous guidance below:

Source: FY 2019 earnings release

The shortfall comes mainly from the potash segment, which has seen some adverse developments of late:

  • Competitor Belaruskali has settled its contract with China at a price of $220/metric ton. While this should set a floor on global potash prices, it marks a $70/metric ton reduction from last year's contract. This kind of price had not been seen since the 2016 potash market trough.
  • Nutrien expects reduced corn use for ethanol production in 2020, resulting in lower corn prices and acreage, and therefore, a reduced need for crop inputs.

Generally speaking, crop nutrient prices are down sharply vs the same period last year, as shown by competitor Mosaic's price dashboard:

Source: Mosaic's weekly price dashboard

It's worth mentioning that, as far as the nitrogen segment is

This article was written by

Silver Coast Research profile picture
Finance professional from France. My strategy is twofold: - I build capital by identifying small-cap stocks that are likely to appreciate in the near term. - I reinvest the profits from the small-cap stocks into more established dividend payers, in order to build a growing stream of passive income. When looking for undervalued small-cap stocks, my focus is on fundamentals and the presence of hidden assets and near-term catalysts. When looking for dividend stocks, I want decent coverage and capacity to grow the dividend, and I look for special situations where short-term headwinds provide a favorable entry point. I have been contributing to The Natural Resource Hub. However, all of the articles authored by me are entirely the product of my independent research.

Analyst’s Disclosure: I am/we are long NTR, CF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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