Obviously these are USD targets. GLTA
2024 Investor Day Highlights Our Conclusion
NTR held its 2024 Investor Day in New York today, where the company laid
out its 2026 financial and operational targets / scenarios. Overall, NTR made
no changes to its longer-term potash/nitrogen sales volume and Retail adj.
EBITDA targets, but did highlight how it intends to get there and the several
measures it is taking to improve its earnings quality / FCF. We have made
no changes to our forward estimates and maintain our $76 price target and
Outperformer rating.
Key Points
2026 Adj. EBITDA Scenarios: With combined potash and nitrogen sales
volume growth of 2Mt-3Mt by 2026 (vs. 2023) and an ~$200MM reduction in
operational controllable costs, NTR expects 2026 adj. EBITDA of $7.0B-
$7.5B based on NTR’s mid-cycle fertilizer pricing assumptions (i.e., potash
and urea pricing ~30% higher than current levels) and $5.80B-$6.20B based
on historical 10-year average fertilizer prices. Note, 2025 and 2026
consensus is at ~$5.7B. Our view is that given relatively balanced potash
markets, we are not anticipating much upside in potash prices at this point.
Nitrogen pricing is more difficult to call as it is dependent on the pricing of
input gas/coal prices.
NCIB Likely To Remain Being A Focus, But Company Likely To Take A
More Measured Approach: Assuming a 70%-75% cash conversion ratio,
2026 CFO would be $5.1B-$5.4B (using NTR’s mid-cycle fertilizer pricing
assumptions) and $4.2B-$4.5B (using 10-year average prices). Along with
~$3.7B planned to be allocated for capex (consistent vs. 2024 guidance
levels), dividends and lease payments, this would leave FCF of $1.4B-$1.7B
(using NTR’s mid-cycle pricing assumptions) or $0.5B-$0.8B (using 10-year
average prices) that could be utilized for an NCIB and tuck-in M&A (with a
focus on North America and Australia). Given NTR’s history of purchasing
stock at higher prices, we would expect NTR to take a more measured
approach to its NCIB program. Note, NTR’s share price is currently at ~$53
vs. NTR historical average share buyback in the mid-$70s.
Focus On Enhancing Quality Of Earnings / FCF: Focus will be on
enhancing low-cost North American fertilizer production assets (2Mt-3Mt
growth by 2026 vs. 2023), strengthening global distribution network, and
investing in core Retail businesses with a focus on proprietary products
(>10% annualized gross margin improvement). From an operations
perspective, NTR intends to improve nitrogen operating reliability by four to
five percentage points by 2026 vs. 2023 levels, double the automation of
potash ore cut for the same period, and focus on improving Brazil Retail
margins. NTR is shelving its previously paused Geismar clean ammonia
project, pursuing the divestiture of Retail assets in Argentina, Chile and
Uruguay, and reviewing strategic options for Profertil (Argentinian nitrogen
asset; ~670kt of urea capacity), which is 50% owned by NTR.