Stocks’ Details 

Nutrien Ltd. (TO: NTR) is engaged in producing and selling fertilizers and industrial-related feed products. The company's products mainly consist of standard and granular potash, nitrogen, diammonium phosphate, ammonium phosphate and phosphoric acid, urea, and nitric acid for agricultural, industrial and customers worldwide. Nutrien Ltd. is headquartered in Saskatoon, Canada that serves more than 500,000 grower accounts. The company is well positioned to meet the growing demand and create shareholders value. The company reports under four operating segments namely, Retail, Potash, Nitrogen and Phosphate and sulfate. 

Financial Highlights – FY18 (figures are in US$) 

In FY18, the company reported total sales of ~$19.6 billion, up 8% on a year over year basis. The increase can primarily be attributed to higher phosphate fertilizer, potash and urea prices, along with higher retail sales from recent acquisitions and higher potash sales volumes. Adjusted Net Earnings per share for the period came in at $2.69. Adjusted EBITDA increased 32% year over year and came in at $3.9 billion. The company’s robust margins along with an increase in Potash sales volume and higher sales from Nitrogen business unit coupled with a lower cost are key catalysts for the period.

Retail contributed ~64% in Nutrien’s total sales of FY18. The segment provides agricultural solutions, which incorporates merchandise services, nutrients, seeds along with crop protection products. Potash contributed ~15% in Nutrien’s total sales of FY18. The company has a total of six potash mines in Saskatchewan. Nitrogen (~13% of total revenue) is engaged in the production process of Ammonia, urea, solutions and nitrates. Lastly, Phosphate and sulfate offer a different mix of phosphate products, containing feed and industrial acids coupled with solid & liquid fertilizers. In 2018, the segment represented ~8% of total sales. Moreover, the company continued to expand its geographic footprint in FY18. The company is the largest crop nutrient producer with more than 27 Mmt of worldwide sales, having its operations and investments in 14 countries with more than 20,000 employees globally. 

The company recorded a compound annual growth rate of ~7.3% in its revenue across FY15-FY18. The company witnessed continued growth in its four reportable segments. NTR remained focused on investing in growth and innovation within the Retail business unit. The company acquired 53 locations in FY18 and have around 10 greenfield facilities in different stages of completion. The company also acquired proprietary products company in Brazil and witnessed massive opportunity to build its Retail network in this vast and growing agriculture market. Notably, cash flow from continuing operating activities increased at a CAGR of ~5.4% across FY15-FY18. The company returned a total of $2.8 billion in the form of dividend and share repurchase to its stakeholders in FY18.

Sneak Peak of Financial Performance (Source: Company Reports)

 Share Repurchase & Dividend Highlights (Source: Company Reports) 

Financial Highlights – Q3FY19 (figures are in US$) 

Q3FY19 Financial Highlights for the period ended 30 September 2019: The company’s revenues increased 4% year over year to $4,134 million. The company reported adjusted earnings of $0.24 per share, as compared to a loss of $1.74 per share reported in the year-ago quarter. The results were positively impacted due to the continues benefit from acquisition synergies and higher operational efficiencies coupled with higher potash prices, and robust performance by Retail during the quarter. The company reported adjusted EBITDA of $785 million versus negative $932 million reported in the year-ago period. 

Retail Segment: Revenues from this segment increased ~17.6% on a year over year basis and came in at ~$2.5 billion in the reported quarter. The increase can primarily be attributed to higher sales from crop nutrients and crop protection products. Segmental EBITDA stood $190 million, as compared to $116 million in the year-ago period, indicating a higher proportion of crop nutrients and crop protection products applications in the US.

Potash: Net revenues from this unit stood at $709 million, a decline from the prior-year figure of $816 million. Adjusted EBITDA dropped 14% year over year to $430 million.

Nitrogen: Net revenues from the segment declined 6% to $533 million in the quarter, due to lower sales of ammonia and solutions, nitrates and sulfates, which more than offset the increase in Urea sales. Also, delay in the start to the fall season across most of North America, as a result of late maturity of the crop impacted the quarterly revenues. EBITDA came in at $247 million during the quarter, as compared to $270 million recorded in the year-ago quarter.

Phosphate: Net revenues decreased 29% year over year to $270 million, primarily due to the transformation of the Redwater facility to ammonium sulfate along with lower-than-expected demand influenced by a delay in spring planting season in North America. EBITDA declined 55% year over year and came in at $34 million. The decrease was on the back of higher costs, a decrease in selling prices and lower sales volumes.

3QFY19 Key Highlights (Source: Company Reports) 

Operating Highlights: During the quarter, gross margin came in at $1,140 million, down from $1,155 million reported in the year-ago period. Total expenses decreased to $812 million, from $2,514 million reported in the third quarter of 2018. The company reported adjusted net earnings from continuing operations of $141 million, as compared to a loss of $1,067 million in Q3FY18. The company increased its quarterly dividend to $0.45 per share, from $0.43 per share, payable on October 17, 2019. During the quarter, the company paid a total dividend of $244 million to its shareholders.

(Source: Company Reports) 

Balance Sheet & Cash Flow Details: The cash and cash equivalents stood at $568 million at the end of the quarter compared with $2,314 million as of December 31, 2018. Long-term debt at the end of the quarter amounted to $8,555 million, as compared to $7,579 million as of December 31, 2018. Cash inflow from operations for Q3FY19 stood at $589 million, as compared to a cash outflow of $177 million at the end of third-quarter 2018.

Cash Flow Sneak Peak (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 22.9% of the total shareholding. First Eagle Investment Management, L.L.C. is the entity holding maximum shares in the company at 3.69%. The Vanguard Group, Inc. is the second-largest shareholder, with a holding of 2.81%.

Top Ten Shareholders (Source: Thomson Reuters) 

Digging into NTR’s Recent Updates: 

On 6 January 2020, the company announced that it had inked a deal to buy 100% stake of Agrosema Comercial Agricola Ltda. (“Agrosema”), subject to customary closing condition. The acquisition is an excellent move to strengthen NTR’s Ag retail business in the key Brazilian agricultural market.

The company also announced that strike in Cn rail have forced it to stop production at its biggest potash mine, Rocanville.

Outlook: A recent decline in corn and soybean production in the US has somewhat squeezed the supply while demand remained decent. Going forward, it is expected that there will be an increase in planted acres for these two which in turn would drive the application of fertilizers, going forward. Also. The fall season in North America is expected to boost near-term demand outlook for major fertilizers, which is a key positive. Strong usage in key consumer markets, primarily in India and Brazil, is pushing demand for primary crop nutrients. The company also expects the utilization in the Potash segment to rebound in 2020 as the demand for this is expected to remain robust while there is a limited scope of capacity ramp-ups. Most of the demand for potash is expected to come from the US and China. Similar to potash, the management expects a higher demand for nitrogen with minimum capacity expansion which, in turn, would lead to tighter supply.

The group is expected to invest ~$4 to $5 billion to enhance its retail business platform in the next 5 years. The primary focus would be on improving supply chain and marketing channels along with the use of technology to drive organic growth. To enhance its potash capacity, the company is evaluating low-cost brownfield projects. This might result in an additional 5Mmt capacity.  In the next five years, the company is targeting to generate ~$22-$25 billion of operating cash flow. More than 50$ of this expected cash flow would be utilized in funding growth plans and addition return to the shareholders.

Nevertheless, rising trade tensions between the United States and China are pondering on crop prices in North America. China is witnessing a downtrend in phosphate demand, which is partially offsetting growth in other key markets.

Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: 

Method 1: Price to Cash Flow Multiple Approach

Price to Cash Flow Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Method 2: EV/EBITDA Multiple Approach

EV/EBITDA Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As on 10 February 2020, the stock has a market cap of ~CAD $32.7 billion with a P/E multiple of ~6.1 and an annual dividend yield of ~4.11%, suggesting a decent opportunity for accumulation. The company has also witnessed a compound annual growth rate of ~7.3% in its revenue from a time span of FY15-FY18. The company expects that strengthening agricultural fundamentals will be a key catalyst in FY20. The company is taking necessary measures to grow its Retail business and remains on track to enhance shareholders value, which is a key positive. Based on the integrated business model, the company remains positive that it will drive significant long-term value.

We have valued the stock using two relative valuation methods, i.e., P/CF multiple and EV/EBITDA multiple, and for the said purpose, we have considered peers like Scotts Miracle-Gro Co (NYSE: BWA), CF Industries Holdings Inc (NYSE: CF), Mosaic Co (NYSE: MOS) and Intrepid Potash Inc (NYSE: IPI). Therefore, we have arrived at a target price with an upside of lower double digit (in percentage terms). Considering the above factors, we give a “Buy” recommendation on the stock at the current market price of CA$57.20 per share, down ~0.6% on 6 February 2020.

NTR Daily Technical Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.