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:

• Consistent Dividend Distribution: The company has an impressive history of consistent dividend payment, backed by stable cash flows. In Q1FY21, the group paid a total dividend of USD 255 million, which is at par with the dividend distribution of the previous corresponding period. Moreover, at the last closing price, the stock was offering a dividend yield of ~2.847%, which is decent considering the lower interest rate scenario.

Dividend Distribution History

• Strong Growth in Free Cash Flow: In Q1FY21, the company reported a stupendous growth with free cash flow of USD 476 million, as compared to USD 181 million in Q1FY20. This is a key positive and indicates the company’s strong integrated business model, which was supported by prudent execution of strategic initiatives and the recovery in global agricultural markets.

• Revised Annual Guidance Updard: Nutrien raised full-year 2021 adjusted net earnings per share and adjusted EBITDA guidance to USD 2.55 to USD 3.25 per share and USD 4.4 billion to USD 4.9 billion, respectively. First-half 2021 guidance is provided at USD 2.00 to USD 2.20 adjusted net earnings per share.

Q1FY21 Financial Highlights:

• NTR announced its quarterly result, wherein the company posted sales of USD 4,658 million, up 11% over Q1FY20. The increase was driven by higher Retail sales coupled with an impressive performance from Potash segment.
• Gross margin surged 31% on y-o-y basis to USD 1,156 million, thanks to the elevated revenue and controlled freight, transportation and distribution expense, partially offset by a 6% higher cost of goods sold at USD 3,291 million.
• The period was marked by higher selling expenses, marginally lower general and administrative expenses. Adjusted EBITDA rose 59% on y-o-y basis to USD 806 million.
• Finance cost stood lower at USD 120 million, as compared to USD 133 million in the previous corresponding period.
• The company reported its net earnings at USD 133 million as compared to a net loss of USD 35 million in Q1FY20.

Q1FY21 Income Statement Highlights (Source: Company Report)

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

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

Due to the strong demand from the agriculture segment, the group witnessed a robust demand in potash and nitrogen, which has resulted in a surge in prices and shipments. The group expects Adjusted EBITDA for FY21 within in the range of USD 4.4 billion to USD 4.9 billion, while Potash sales are expected within 12.5 to 13.0 million tonnes, followed by Nitrogen sales within 10.9 to 11.4 million tonnes in FY21. 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 Dupont De Nemours Inc, Corteva Inc etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of NTR at the closing price of CAD 77.97 on June 04, 2021.

One-Year Price Chart (as on June 04, 2021). Source: Analysis by Kalkine Group

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

Imperial Oil Limited

Imperial Oil Limited (TSX: IMO) is one of Canada's leading integrated oil companies, which operates in upstream operations, petroleum refining operations, and the marketing of petroleum products.

Key Highlights:

• Surge in Free Cash Flow: The group reported a rise in free cash flow in Q1FY21 to CAD 898 million, significantly higher than CAD 115 million in the previous corresponding period (pcp). The increase was driven by higher cash from operations of CAD 1,045 million, up from CAD 423 million in Q1FY20.

                               
Free Cash Flow Highlights (Source: Company Report)

• Record Upstream production from Kearl: The company reported record production from Upstream in the Kearl project. Average gross productionstood at 251,000 barrels per day, significantly higher than 226,000 barrels per day in Q1FY20. The growth was driven by production growth primarily driven by supplemental crushing facilities.

Q1FY21 Financial Highlights:

• IMO announced its quarterly results, wherein the company reported revenue and other income of CAD 6,998 million, higher than CAD 6,690 million in the previous corresponding period (pcp). The increase was driven by higher income from the upstream segment (CAD 3,493 million v/s CAD 2,374 million in pcp), partially offset by a slightly lower downstream revenue (CAD 5,305 million v/s CAD 5,379 million in pcp). The group reported an average production of 432,000 gross oil-equivalent barrels per day,grew from 419,000 barrels per day in Q1FY20.
• Purchases of crude oil & products costs and production & manufacturing expenses stood lower at CAD 3,887 million and CAD 1,485 million, respectively, as compared to CAD 4,226 million and CAD 1,579 million, respectively, in Q1FY20.
• The group reported a net profit of CAD 392 million, as compared to a net loss of CAD 188 million in pcp. The improvement was supported by a net income from the upstream segment (CAD 79 million, as compared to a net loss of CAD 608 million in pcp).
• The company reported a cash balance of CAD 1,467 million, while total assets were recorded at CAD 39,007 million.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The company’s income is directly related to the price of crude oil. Any volatility in oil prices would affect the overall realization prices and the company’s margins and cash flows.

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

In the first quarter of FY21, the group has raised its dividend distribution by almost 23%, from 22 cents to 27 cents per share in Q1FY20, backed by a surge in cash flows, which is a key positive. The company took prudent strategies of lowering its expenses and capex in order to sail through the turbulent times of lower crude oil demand coupled with a drastic fall in the international crude oil prices. Notably, capital and exploration expenditure stood at CAD 163 million, as compared to CAD 331 million in Q1FY20. 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 the industry (Oil & Gas) median on an NTM basis. Considering the aforesaid facts, we give a ‘Hold’ rating on the stock of IMO at the last closing price of CAD 41.08 on June 04, 2021.

One-Year Price Chart (as on June 04, 2021). Source: Analysis by Kalkine Group

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

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.