CIBC EQUITY RESEARCH
January 21, 2024 Industry Update
Western Conference Highlights - NTR,
MEOH, AFN, CHE.UN
We hosted NTR, MEOH, AFN and CHE.UN at CIBC’s 27th Western Investor
Conference. Our weekend industry updates and more detailed conference
takeaways for each company can be found in the following pages of the
report. Also, refer to our 2024 Agriculture, Fertilizer & Chemical Outlook.
1) NTR – Expect Pricing Stabilization / Mid-cycle EBITDA View Higher
Than 2023 Maintained: NTR expects more stability in 2024 with fertilizer
prices stabilizing. A higher nitrogen/potash cost curve and inflationary
pressures should lead to higher-than-historical-average fertilizer pricing. With
room to expand nitrogen and potash volumes by another 1Mt and 1Mt-2Mt,
respectively, NTR believes mid-cycle EBITDA should be $7.0B-$7.5B. For
2024 (guidance to be released in February), NTR expects EBITDA to be below
this range given slightly lower mid-cycle pricing and volumes that have not
maxed out (though still growing Y/Y). Current 2024 consensus is ~$6B. NTR
expects growth capex to fall ~50% in 2024 (much of the capacity expansions
have been completed in 2023) and will look at an NCIB as 2024 unfolds.
2) AFN – High-single- To Double-digit Revenue CAGR Over The Next
Few Years: Unlike DE/CNH, which are more impacted by ag. cycle cyclicality,
AFN (diversified across geographies, market and product line) is optimistic
heading into 2024 and indicates that it has “100%” not hit peak EBITDA. AFN
sees product transfers, emerging market growth, and the digital/food platforms
supporting positive results in 2024. AFN expects a high-single-digit / low-
double-digit sales CAGR over the mid-term (consensus estimates imply
7%/6% Y/Y sales growth in 2024/2025). EBITDA margin gains in 2023
(~250bp YY improvement) are sustainable going forward.
3) MEOH – Expecting A Balanced Market In 2024 / NCIB Program Still
Delayed: Global methanol demand growth has been slow, but it is still
growing. G3/Malaysia could add ~3.6Mt to the market in 2024, but there will
also be capacity reductions (Trinidad/Equatorial Guinea). MEOH expects to
see a balanced/tight market, particularly after 2024 with no major projects
expected to come online. The start-up of G3 is imminent, with commissioning
work complete. Egypt facility repairs are going very well and MEOH expects
the plant to be up and running in the current quarter. The near-term focus for
the company remains on repaying (rather than refinancing) the $300MM
bond due later this year. Beyond that, MEOH will look at its NCIB program.
4) CHE.UN – 2024 Guidance A Good Proxy For New Mid-cycle Earnings
Levels: CHE.UN believes 2024 guidance (mid-point EBITDA of $415MM) to
be a good proxy of CHE.UN’s new mid-cycle earnings levels, vs. $300MM-
$350MM a few years ago. With a much better balance sheet (leverage to
remain <2x by 2024-end), CHE.UN’s focus is on organic projects in the
ultrapure, PAC/ACH, and hydrogen space which should generate IRRs of
20%+. The dividend (raised 10% last week) is safe and CHE.UN estimates a
2024 payout ratio of 45% (excluding growth capex). CHE.UN is less likely to
look at an NCIB today given its potential to be included in the TSX Index.