Post by
retiredcf on Aug 05, 2022 9:36am
CIBC
This is a US target. GLTA
EQUITY RESEARCH
August 4, 2022 Earnings Update
NUTRIEN LTD.
Strong Ag./Potash Fundamentals Underpin Positive Outlook
Through 2023 – Q2/22 Review
Our Conclusion
NTR reported very good Q2/22 results, with the beat driven by the Retail
segment (this leading retail platform is why we believe NTR deserves a
premium multiple over other wholesale fertilizer peers). NTR did reduce
guidance (though in line with consensus) primarily to reflect the volatility in
nitrogen and natural gas markets. With global grain stock-to-use ratio at ~15-
year lows and potash markets’ supply constrained for at least the next three
years, we expect NTR to generate strong earnings/FCF for the foreseeable
future. Other than incorporating Q2/22 results, we have made only modest
changes to our F2022 and F2023 estimates. We maintain our $112 price
target and Outperformer rating.
Key Points
Potash Markets To Remain Tight For Foreseeable Future: H1/22 Russia
and Belarus exports were down ~25% Y/Y and ~50% Y/Y, respectively. For
F2022, NTR sees Russian shipments remaining down 25% Y/Y and Belarus
shipments down 50%-65% Y/Y. For F2023, NTR sees Russian exports down
5%-20% vs. 2021 levels and Belarus shipments still down 30%-50% vs. 2021
levels. In China and India, port stocks stand at ~1.7Mt-1.8Mt (five-year lows)
and 550kt-600kt (very low levels), respectively, as these lower contract
priced regions are not getting shipments in the supply-constrained market.
Nitrogen Prices Have Likely Bottomed For The Year: Nitrogen prices
should strengthen through H2/22, supported by high European gas prices, as
well as restricted Chinese urea/Russian ammonia exports. European gas
prices averaged ~$50/MMbtu in July, equating to an ammonia production
cost of over $1,700/t. NTR estimates over 20% of Europe's ammonia
production is curtailed. Many buyers delayed purchases given recent market
volatility, but seasonal resurgence of demand in H2/22 could further tighten
supply.
Solid H1/22 Retail Results; Margins To Normalize (In Line With
Expectations): NTR’s Retail segment has had a solid H1/22 (adj. EBITDA
up +38% Y/Y), driven by higher margins across nearly all products and
regions. Crop nutrients and crop protection margins have been very strong
due to strategic procurement and a rising price environment (i.e., margin
benefit vs. lower-priced inventory), supported by growth in higher-margin
proprietary nutritional products. Looking forward, while NTR expects a good
fall application season in North America, the company does see margins
normalizing (in line with our expectations).
Strong FCF Forecast Over F2022/F2023: We are forecasting over $9B and
$8B in FCF (CFO before non-cash working capital investments less
sustaining capex) in F2022 and F20203, respectively. For F2022, NTR
anticipates repurchasing $5B in shares ($1.8B repurchased year to date).
Comment by
wideopenthrottl on Aug 06, 2022 1:07pm
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