Nutrien Ltd.

Nutrien Ltd. (TSX: NTR) is a leading agriculture chemical company and is engaged in the production and distribution of potash, nitrogen, and phosphate products for agriculture and industrial customers worldwide.  The company is the largest agricultural retailer in the United States. Nutrien’s operational geographies include the United States, Canada, South Africa, Australia and South America.

The Company announced a quarterly dividend of USD 0.45 per common share, payable on October 16, 2020.

Q2FY20 Financial Highlights: NTR announced its quarterly results, wherein the Company posted revenue of USD 8,416 million, representing a decline of 3% on y-o-y basis. Net realized selling price decreased during the period, reflecting pressure in global benchmark prices. The quarter was marked by a strong demand from North America aided by an increase in US planted acreage and more normal weather coupled following several challenging application seasons. Gross margin stood at USD 2,155 million as compared to USD 2,312 million in the previous corresponding period (pcp). Cost of goods sold per tonne stood lower during the quarter driven by lower production costs and lower depreciation and amortization related to the production mix. Adjusted EBITDA stood at USD 1,721 million, as compared to USD 1,870 million in the previous corresponding quarter. Net earnings stood at USD 765 million, lower than USD 858 million in pcp. The Company reported free cash flow of USD 1,173 million as compared to USD 1,308 million in pcp.

Q2FY20 Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to the risk of weakness in the global economy due to widespread distortions caused by novel virus COVID-19, which can have an impact on the global industrial nitrogen demand in 2020. 

Valuation Methodology: Price to CF Based (Illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock corrected ~21% so far this year amid volatility in the equity market owing to COVID 19 pandemic. The Company reported improved demand from its retail segment, despite a tepid industry scenario, which is commendable. The group mentioned that North American spring fertilizer application was robust and customer engagement in summer fill programs was strong as wholesale customers replenished inventories. The US corn and soybean crop is progressing well ahead of 2019 levels, which could be supportive of strong fall applications. Global potash buying increased meaningfully following the signing of the China and India potash contracts, particularly in Brazil. With strong demand in most key regions, many producers have announced they are now sold out through September 2020, and Brazilian prices have rebounded by over $30/mt from low values in the second quarter of this year. The group maintained its projection for 2020 global potash shipments between 65 and 67 million tonnes. The Company expects its adjusted EBITDA between USD 3.5 million to USD 3.8 million for FY20. The Company has ample liquidity, which seems to be sufficient to withstand the current challenging time. Further, to enhance its liquidity, the Company has issued USD 1.5 billion of notes, which will support the current working capital requirements. Further, the stock carries a dividend yield of 4.89%, which would attract income investors. We have valued the stock using P/CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like CF Industries Holdings Inc, Corteva Inc, Lyondell Basell Industries NV etc. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 49.14 on August 27, 2020.

NTR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Guardian Capital Group Ltd.

Guardian Capital Group Ltd. (TSX: GCG.A) is a financial service company, which is engaged in providing investment management services to private wealth clients. The group’s offerings include pension plan sponsors, third-party broker-dealer platforms, closed-end funds, Exchange Traded Funds and mutual funds, endowment funds, and foundations.

On August 14, 2020, Guardian has informed that it will acquire 70% interest in Agincourt, an investment management firm based in Richmond, Virginia, USA. However, the transaction is expected to close in the Q4FY20 and is subjected to certain regulatory and other approvals and customary closing conditions. 

The Board of Directors declared a quarterly dividend of CAD 0.16 per share, payable on October 12, 2020.

Q2FY20 Financial Highlights: GCG announced its quarterly results, wherein the Company posted net revenue of CAD 50.124 million as compared to CAD 45.963 million in the previous corresponding period (pcp).  This growth in revenue was underpinned by growth from the Investment Management Segment, due to a higher proportion of non-Canadian equity AUM, which earn fees at higher rates.  The Company reported its operating earnings at CAD 13.427 million, against CAD 12.590 million in pcp. EBITDA, during the quarter stood at CAD 17.3 million, as compared to CAD 16.2 million in the previous corresponding quarter. The company reported net earnings of CAD 51.244 million, as compared to CAD 17.601 million in pcp, due to an increase in the fair value of the Company’s Securities. GCG’s AUM, at the end of the quarter stood at CAD 31.2 billion, reflecting a 4% growth from FY19. The sharp recovery in the global equity markets coupled with a significant inflow of assets into the Company’s UK subsidiary has contributed the growth. 

Q2FY20 Financial Snapshot (Source: Company Reports)

Risks: Extreme volatility in the financial markets might lead to higher redemption rate, which would dampen the Company's AUM.

Stock Recommendation: The stock corrected ~10% so far this year, due to the free-fall scenario in the financial market on account of demand destruction scenario on account of COVID 19 pandemic. The recent acquisition would help the business to add more than USD 7 billion to the Company's portfolio, which is a key positive as it would enhance the Group's presence across new geographies. Further, the Company's portfolio would be enriched with high-grade bond portfolios, both in core US fixed income investment mandates. The above acquisition would offer new products for its existing and new customers, which is a key driver of retaining the AUM during any economic cycle. Going forward, we expect the Group's AUM to increase as the equity market has made a sharp recovery in the recent past, and it has increased the investor's confidence in the market. Higher AUM is likely to result in improved management fee, which is a key positive for the Group. The stock gained ~14% in the last three months and closed above the 200 days simple moving average (SMA) of CAD 23.73 million, indicating a bullish trend. The stock is trading at relatively lower at book value of 1.0x on TTM basis, as compared to the industry (investment banking & investment services) median of 1.2x. Hence, we recommend a 'Buy' rating on the stock at the closing market price of CAD 24.15 on August 27, 2020.

GCG.A Daily Technical Chart (Source: Refinitiv, 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.