Nutrien Ltd T.NTR

RBC

[retiredcf]

Their upside scenario target is US$140.00. GLTA

April 12, 2023

Outperform

NYSE: NTR; USD 72.21; TSX: NTR

Price Target USD 100.00 ↓ 110.00

Nutrien Ltd.

Q1/23 preview — Guidance cut expected after slowstart, but priced-in

Our view: We expect a weak Q1 and 2023 downward guidance revisions, reflecting a slow start to 2023. However, we think ag and fertilizer market fundamentals remain favourable and recent weakness has already been priced into shares which could set up for an H2 rally as fertilizer markets improve and FCF remains solid (11%/10% yield in 2023/2024) with a potential bump if potash capex plans are delayed further.

Key points:

• Q1/23 start to the year slower than expected; RBCe EBITDA $1.6B vs. $1.7B consensus: Demand was slower than expected through Q1 despite favourable ag/fertilizer fundamentals, resulting in continued price declines and slow sales. Nitrogen in particular was weaker than expected while potash also declined. Retail activity was also impacted, likely pushing out sales into Q2 while margins are likely to see a Q/Q decline as crop nutrient margins normalize and no longer benefit from a rising price environment.

• Ag/fertilizer indicators remain favourable, but 2023 off to a slow start: Despite a strong set-up, demand has been slow to start in 2023, with buyers hesitant to step into a declining price environment, previous high-priced inventory still taking time to clear, and higher carry-costs discouraging purchases. The North American spring season should still see strong volume movement, but price peaks may disappoint relative to earlier-year expectations. However, we continue to see a constructive environment for ag/ferts with crop prices still 30-40% above historical levels, crop profitability near record highs, significant planted acreage, and favourable fertilizer affordability. On supply, potash continues to see restricted exports from Belarus/Russia and nitrogen marginal costs remain high, even if these pressures have eased a bit from 2022. We have lowered our 2023/2024 Brazil potash price forecasts by ~10%, while our US NOLA urea price forecasts for 2023 and L-T were reduced by ~10-15%.

• Lowering estimates, but likely already priced-in: As a result of slower demand and lower prices to start in 2023, we lower our full-year EBITDA estimate to $8.1B, down from $9.0B and below the company's current guidance at $8.4-10.0B. While this is a steep cut, we think downward estimates revisions are largely expected by investors based on recent industry feedback and shares trading at ~6x EV/EBITDA on our new estimate (vs. 8-9x average historical).

• Cash generation still solid, could see boost if potash capex delayed further: We continue to see solid cash generation at 11% and 10% in 2023 and 2024 ($3.9B and $3.6B). We also see potential for potash capex spend to be delayed further as demand remains slow, which could add $300-500M to our FCF forecasts.

• Reiterate Outperform rating, lower PT to $100 (from $110): We lower our 2023E and 2024E EBITDA to $8.1B and $7.9B, from $9.0B and $8.7B