Defensive Business with improved Demand Scenario: Nutrien Ltd.(TSX: NTR) is engaged in processing and distribution of fertilizers and industrial-related feed products, which includes potash, nitrogen, diammonium phosphate, ammonium phosphate and phosphoric acid, urea, and nitric acid for agricultural and industrial worldwide.

The company expects demand for the commodities to increase in the coming quarters. Demand for Potash and Nitrogen are expected to improve in FY20, driven by increased planting acreage in North America. Investors should note that the company foresees a strong demand for crop inputs during the spring season while the company maintains a healthy balance sheet backed by substantial liquidity which bodes well for the business.  The company will disclose its first quarter FY20 result on May 6, 2020.

The company paid a quarterly dividend of US$ 0.45 per share. Meanwhile, the company paid a dividend of US$1,022 million in FY19, higher from US$ 952 million in FY18.

FY19 Financial Highlights: NTR came up with its full-year results, wherein the company reported a decent set of numbers and posted revenue of US$ 20.02 billion, up 2% on y-o-y basis. The increase was driven by improved retail sales and higher contribution from Nitrogen and Phosphate, which was partially offset by lower Potash income. Adjusted EBITDA increased to US$ 4.02billion, up 2% from FY18, supported by higher gross income, lower general and administrative and lower share-based compensation expenses. Net earnings from continuing operations stood at US$ 0.99 billion, as compared to a loss of US$ 0.031 billion in FY18. Free cash flow increased to US$ 2.16 billion, up 9% from US$ 1.98 billion in FY18.

FY19 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology (Illustrative): P/E based approach

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

Stock Recommendation: The stock of NTR reported a decent gain of ~25.2% gain during the last one month and currently the stock is trading at a market capitalization of US$ 28.63 billion. Further, the company currently offers a dividend yield of ~4.75%, which looks lucrative, amidst lower interest rate environment. The stock is trading above its 20-days and 50-days simple moving average (SMA) of CAD 46.45 and CAD 49.33. Investors should note that the company continues to expect solid demand for crop inputs for the spring season, which is likely to support its financials. Also, the company’s offerings fall under “essential services” which implies that it continues to operate its business, which should support cash flows. Further, the company’s strong balance sheet, ample liquidity, and stable dividend make it a perfect investment option amid volatility. We have valued the stock using P/E based relative valuation methodology. We have taken peers like, Mosaic Co (NYSE: MOS), CF Industries Holdings Inc (NYSE: CF), Corteva Inc (NYSE: CTVA) etc. and arrived at a target price which implies a low-double digit upside (in % terms). Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 50.25 as on April 17, 2020.

NTR Daily Price 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.