Nutrien (Outperformer, $69 Price Target)
Our Conclusion: While crop prices (and farm income levels) are lower, so are fertilizer
prices, with the net impact being improved fertilizer affordability. While farmers may cut back
on large ticket item purchases (such as tractors/combines), we believe farmers will continue
to spend on ag. inputs. We are trimming our FY2024 and FY2025 adj. EBITDA estimates by
2%-3% to account for a slightly lowered potash price forecast. That said, we remain
cautiously constructive with Retail earnings normalizing (stronger Y/Y North America
performance in H1/24 and South America in H2/24), potash market supply/demand looking
more balanced (stabilization of pricing), better Nitrogen operating reliability, and lower capex
levels. We reduce our DCF-based price target to $69 from $76 on a lowered long-term
potash price assumption (partially offset by higher phosphate prices). We reaffirm our
Outperformer rating. Our price target implies an ~8.0x EV/EBITDA multiple on our revised
2025 estimates (in line with NTR’s and POT/AGU’s historical mean) versus current valuation
at ~6.4x.
Q2/24 Preview: We forecast Q2/24 adj. EBITDA of $2.23B (consensus: $2.20B), down from
$2.48B a year ago (see Exhibit 36 table). We expect improved Y/Y Retail margins/results
(particularly in North America; Q2 is Retail’s seasonally strongest quarter) and modestly
higher Y/Y fertilizer volumes to be offset by lower Y/Y potash (lower Q/Q) and nitrogen (flat
Q/Q) fertilizer pricing. We expect phosphate results to be relatively flat Y/Y. We currently do
not expect any meaningful updates to NTR’s FY2024 Retail adj. EBITDA ($1.65B-$1.85B),
potash volume (13.0Mt-13.8Mt) and nitrogen volume (10.6Mt-11.2Mt) guidance at this point.
We will be looking for updates on NTR’s intention to divest its Retail assets in Argentina,
Chile and Uruguay, and strategic options for Profertil (Argentinian nitrogen asset; ~670kt of
urea capacity), which is 50% owned by NTR. 1. Potash Markets Likely To Remain Balanced In 2024: Overall, we expect to see a
relatively flattish potash price environment in the near-term, as incremental supply is
offset by demand. We expect a ~3Mt Y/Y supply improvement from Belarus, Russia and
Laos in 2024 (i.e., excluding other regions). While the potential Canadian rail strike does
pose a risk to NTR’s Q3/24 potash volumes, NTR notes that its F2024 potash volume
guidance of 13.0Mt-13.8Mt does include some strike risk as well. Note, we have lowered
our potash price assumptions for the balance of the year (now forecast relatively flat
pricing vs. prior expectation of a slight improvement).
2. Urea Pricing Have Found A Bottom: Argus expects U.S. Gulf urea prices to average
$305/st-$310/st over H2/24 (vs. $300/st in June 2024), before rising to ~$350/st by Q2/25
next year. Supply restrictions are the main driver of price movements at present. China
remains absent from the export market and Egyptian output was shut completely due to
gas supply cuts last month. It is assumed that China will not remove restrictions for July
or August, but could return to the export market by September. Egypt urea gas-related
curtailments appear to be coming to an end, but July production may still be erratic. Note,
NTR’s current guidance assumes 2024 Nitrogen segment volumes increasing ~500kt Y/Y
at the midpoint.
3. Retail To See Improvement In H1/24 Driven By North America; South America To
See Better H2/24: While farmers may cut back on large ticket item purchases (such as
tractors/combines), we believe spring ag. input (fertilizer, seed and crop protection) was
strong this year. Recall, NTR is guiding for ~$300MM in Y/Y Retail EBITDA improvement
in 2024 at the mid-point of guidance. Just over half of this will come from South America
in H2/24 (recall, South America had a negative ~$120MM drag on overall Retail EBITDA
in 2023), with the remaining coming from North America in H1/24.
4. Valuation Remains Attractive: NTR is trading at 2025 EV/EBITDA of ~6.4x (on our
estimates), well below its average EV/EBITDA multiple of ~8.0x-8.5x. Note Agrium’s and
Potash Corp’s forward EV/EBITDA averaged ~8.5x between 2010 and 2017 prior to the
merger, and NTR’s multiple has averaged ~7.5x since inception in 2018. As the market
gets more confidence that fertilizer and crop prices have found a bottom, we expect this
valuation cap to close.