EQUITY RESEARCH
April 3, 2024 Earnings Revision
Spring 2024 Agriculture, Fertilizer &
Chemical Outlook
Our Conclusion
While low crop prices in early spring 2024 have raised concerns about
farmer affordability, we are expecting a decent spring application season for
ag. inputs. In fact, we believe there could be upside to crop prices from
potential weather-related impacts on Brazil (smaller safrinha crop) and U.S.
(quick transition from El Nino to La Nina) crops. While potash prices appear
to have found a bottom (incremental supply being offset by demand growth),
we do see softness in DAP/MAP and urea pricing (following recent
strengthening) post spring application. The outlook for the chemical sector
has improved, in our view, reflecting the improved macro backdrop and
elevated energy pricing (we favour CHE.UN over MEOH at the moment on
valuation). Our top picks are AFN (accelerating revenue growth as 2024
progresses; valuation near all-time lows despite the stock up ~23% YTD),
and CHE.UN (valuation and sustainable dividend yield ~8%). We are also
cautiously optimistic on NTR (valuation story still intact but lower Y/Y
EBITDA growth forecasted).
Key Points
NTR: We remain 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, better nitrogen operating
reliability, and lower capex levels. We do not expect any meaningful changes
to NTR’s FY2024 guidance along with Q1/24 results.
MOS: We are tweaking our 2024 estimates slightly lower to reflect 1) the
Riverview facility fire (Q2/24), and 2) lower Fertilizantes volumes (Q1/24),
offset by a slightly higher phosphate price assumption (H1/24).
MEOH: We are reducing our Q1/24 estimates to reflect higher costs
associated with the G3 delay and Egypt facility downtime, but raising our
FY2024 estimates on higher methanol realized prices in Q2/24 and Q3/24,
reflecting the G3 delay and somewhat improved macro outlook. We continue
to believe that an NCIB is unlikely in 2024 (more likely at the start of 2025).
AFN: We believe that AFN is well positioned in 2024 to deliver organic
growth (accelerating in H2/24 due to the timing of orders) driven by growth in
emerging markets (India/Middle East/Africa and Brazil in H2/24) and North
America. We continue to see a solid valuation argument (AFN trading at
~6.3x 2025 EV/EBITDA, near a historical low).
CHE.UN: As investors gain confidence in CHE.UN’s “mid-cycle” earnings
potential as the year progresses, this should help solidify the valuation
argument (~4.4x 2025 EV/EBITDA, well below its historical average and
chemical peers). Note, caustic prices have rebounded (up ~25% off January-
end lows to $410/t, vs. CHE.UN’s 2024 guidance of $375/t).