Three Potash Producers Benefitting from Rising Prices

Now that potash prices have broken the C$1000 per tonne barrier, it's easy to imagine them staying this high for the foreseeable future, says Citigroup Global markets analyst Daniel Mon.

Mr. Mon was commenting in a note on Uralkali OAO's announcement Wednesday saying its export trader, Belarusian Potash Co., has raised prices of potash in Southeast Asia and Brazil to C$1000/tonne as of July 1. "To put his in perspective, prices have now doubled in just four months," Mr. Mon said in a note. Potash began 2007 at C$210.

The analyst points out that these lofty prices are afforded in the West by robust grain prices and drastically improved farmer profitability. In the developing world, government subsidies and intervention are facilitating the increases. Mr. Mon said:

We expect both to continue in the near future given that food inflation concerns have made yield improvement critical.

The upshot is that Mr. Mon has buy recommendations across the potash space, and has raised his valuations on his fiscal 2009 estimates to reflect the higher prices. These include:

PotashCorp. (POT), with a 9.3x price-earnings multiple and a 5.8x Enterprise Value/EBITDA multiple
Agrium Inc. (AGU), with corresponding multiples of 7.8x and 4.4x
The Mosaic Co. (MOS), with corresponding multiples of 7.4 and 4.9.

Meanwhile, RBC Capital Markets analyst Fai Lee wrote in a note to clients that his $300 a share target price reflects a EV/EBITDA multiple of 16x pluse $55 per share of value for future expansion.