Nutrien Ltd

Nutrien Ltd (TSX: NTR) is the world’s largest provider of crop inputs and services, and it plays a critical role in helping growers around the globe increase food production in a sustainable manner.

Key highlights:

• Stable Dividend distribution: Over the years, the company reported a consistent dividend distribution, supported by stable cash flows. Moreover, the stock carries a dividend yield of ~3.0%, which looks decent considering the current interest rate scenario.
• Positive Macros: Both agriculture and crop nutrient markets are likely to remain strong for the second half of FY21, supported by strong global demand coupled with historically low inventory levels. Outlook for potash and nitrogen is likely to remain elevated supported by strong demand dynamics on account of favorable agricultural fundamentals. Urea prices are likely to stay strong, supported by growing demand from China region as its government urged the producers to prioritize their domestic market. We believe, the group is highly poised to take advantage arising from the industry.
• FY21 Outlook: The group expects its Adjusted EBITDA for FY21 to remain within USD 6 billion to 6.4 billion. Potash sales and Nitrogen sales are expected in between 13.5 to 13.9 tonnes and 10.8 to 11.2 tonnes, respectively. Sustaining capital expenditures for the above period is forecasted in between USD 1.15 billion to USD 1.25 billion.

Q2FY21 Financial Highlights:

• NTR announced its quarterly result, wherein the company posted sales of USD 9,763 million, climbed from USD 8,431 million in pcp. The increase was driven by higher Retail sales coupled with an impressive performance from Potash segment.
• Gross margin surged to USD 2,882 million from USD 2,170 million in the previous corresponding period (pcp), thanks to the elevated revenue and controlled freight, transportation and distribution expense, partially offset by a higher cost of goods sold (USD 6,659 million v/s USD 6,024 million in pcp).
• The period was marked by higher selling expenses, and an increase in general and administrative expenses. Net earnings stood at USD 1,113 million, jumped from USD 765 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The demand for the company’s products are based upon the global agriculture industry and the commodity prices. Volatility in the commodity prices would likely dampen the company’s realisation prices and cash flows.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The group reported its cash from operations of USD 1,814 million in H1FY21, significantly higher than USD 1,230 million in pcp, supported by elevated net earnings coupled with improved working capital management. Moreover, adjusted EBITDA for H1FY21 grew 36% y-o-y higher at USD 3,021 million. We have valued the stock using the price to earnings-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like CF Industries Holdings Inc, Corteva Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of NTR at the last closing market price of CAD 77.39 on September 2, 2021.

One-Year Technical Price Chart (as on September 2, 2021). Analysis by Kalkine Group

Bausch Health Companies Inc

Bausch Health Companies Inc (TSX: BHC) is a multinational, specialty pharmaceutical and medical device company that develops, manufactures and markets a broad range of branded generic pharmaceuticals, over-the-counter products and medical devices.

Key Highlights 

• Unlocking value through the IPO of Solta Medical business:  The company plans to pursue an initial public offering (IPO) of its Solta Medical business ("Solta") a leading global provider in medical aesthetics with innovative and effective skin rejuvenation and body contouring solutions. We believe the IPO would allow the Company to pay down debt while also unlocking the potential of this high-growth company and providing Bausch Pharma with a significant financial asset that will compare well to other medical aesthetic firms.
• Healthy Full-Year 2021 guidance: The company has prioritized its durable products which it feels have the potential for high operating margins and growth. As a result, management has provided a positive outlook for FY2021. The revenue is expected to fall in the range of USD 8.4 to 8.6 billion. The adjusted EBITDA margin is anticipated to fall in the range of USD 3.35 to USD 3.5 Billion.
• Robust Growth in Cash flows: The group reported a surge in the cash from operations, which stood at USD 395 million, significantly higher than USD 200 million in Q2 FY20. The increase in cash from operations is a positive sign for the company.
• Reducing Debt by USD 350 million: Recently, the company announced that it would reduce debt by USD350 million through the redemption of outstanding senior notes, using cash on hand and cash generated from operations. With this redemption the Company would have redeemed a total of USD 1.0 billion aggregate principal amount of debt in 2021 using cash on hand and cash generated from operations, which is a key positive.

Financial overview of Q2 2021

Source: Company

• In Q2 2021, the company posted higher revenue of USD 2,100 million compared to USD 1,664 million in the previous corresponding period (pcp). The improvement was primarily due to higher volumes resulting from the positive impacts of the recovery from the COVID-19 pandemic.
• It reported an increase in its total expenses to USD 2,370 million against USD 1,691 million in Q2 2020. The increase in expenses was primarily due to the higher cost of goods sold and higher other expenses.
• The company reported an operating loss of USD 270 million, compared to an operating loss of USD 27 million in Q2 2020.
• The net loss posted by the company in reported period stood at USD 595 million compared to a net loss of USD 326 million in Q2 2020.
  

Risks associated with investment

Due to the ongoing restriction caused on account of pandemic, the group might witness a setback in its overall demand and face a hindrance in the supply chain and logistics. Additionally, the company has a huge burden of debt, which implies a balance sheet risk.

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The company’s Q2 2021 results demonstrated impressive overall company growth as the businesses continue to recover from the COVID-19 pandemic. The group witnessed strong performance with market share gains for many of its leading brands and strong cash flow generation in the quarter, which has enabled it to make great strides in reducing the debt, which is a key positive. Furthermore, the company plans to pursue an initial public offering (IPO) of its Solta Medical business, which would support in unlocking the potential of this high-growth company. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 36.94 on September 2, 2021. We have considered Teva Pharmaceutical Industries Ltd, Viatris Inc, Jazz Pharmaceuticals PLC, etc., as the peer group for the comparison.

One-Year Technical Price Chart (as on September 2, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

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