Post by
retiredcf on Jan 26, 2023 2:42pm
More CIBC
EQUITY RESEARCH
January 22, 2023 Industry Update
Western Conference Takeaways - NTR,
MOS, MEOH, CHE.UN, AFN
Key Points
We hosted NTR, MOS, MEOH, CHE.UN and AFN at CIBC’s 26th Western
Institutional Investor Conference. Our top three takeaways are summarized
below, while more detailed takeaways for each company can be found on
pages 8-11. We also provide our weekly market updates on pages 2-7.
1) NTR/MOS: Differing Near-term Views For Potash, But Demand
Returning: NTR indicates that potash prices could be nearing a floor (Brazil
price bottomed at $490/t a month ago and is now $515/t-530/t). H2/22 Brazil
and North America demand pulled back the most, and NTR expects these
markets to perform the best in 2023 given that inventory is at or close to
normalized levels. MOS expects potash prices to stabilize once demand
returns to normal levels (U.S. spring application, Brazil second crop), and
expects nitrogen demand to emerge first, then phosphate, followed by potash.
But both firms expect a material potash supply deficit in 2023, with Belarus
exports unlikely to return to normal even if there is Ukraine war resolution.
2) AFN: Balance Sheet The Number One Priority; Expect Brazil
Exposure To Double In Next Three Years: AFN’s leverage (net debt /
EBITDA) ratio declined to 4.1x at Q3/22-end from ~5x at 2021-end, and AFN
expects the ratio to rapidly decline in the years ahead: under 4x exiting 2022,
low 3x by 2023-end with a longer-term target of 2.5x. Once AFN hits this
target, the focus will be investing in organic growth opportunities in high
growth regions such as Brazil and India. The Brazil business has hit an
inflection point over the last few years (50% CAGR growth) and today makes
up over 10% of AFN’s overall business. AFN’s market share in Brazil was in
the low single-digit percentage range four or five years ago. Today, it is 20%
and management noted that it could see the Brazil business doubling in the
next three years as it expands its product offering to fertilizer, feed and food.
3) CHE.UN: Dividend Safe Despite Higher Planned 2023 Growth Capex;
Chlorate EBITDA Could Double In 2023: CHE.UN 2023 guidance (second
highest EBITDA level historically) reflects higher chlorate pricing (two plant
shutdowns and Europe moving from net-exporter to net-importer) and lower,
but still strong chlor-alkali pricing. CHE.UN will spend $110MM-$140MM in
growth capex in 2023 (vs. planned $270MM between 2023-2027 as
highlighted at CHE.UN’s Investor Day). While this likely results in a dividend
payout ratio above 100% in 2023, CHE.UN intends to maintain its dividend
(yielding 6%+). Essentially CHE.UN is front-loading growth capex (Ohio
expansion and Arizona greenfield ultrapure plants are the biggest
contributors in 2023), and payout ratios will improve in 2024 and beyond.