Agrium Inc. (NYSE: AGU - News) today made a hostile $3.6 billion bid for CF Industries (NYSE: CF - News). The bid is for $72/share, which is a 30% premium to the previous day's closing price. It is one share of Agrium plus $31.70 in cash. Committed financing is in place from Canadian banks.
Agrium has been acquisitive, and recently completed the acquisition of UAP Holdings, a fertilizer distributor. This deal would triple Agrium's capacity to make phosphates and nitrogen-based fertilizers. There would be $150 million in synergies, and the deal is conditional on CF Industries dropping its bid for Terra Nitrogen Company (NYSE: TNH - News).
The deal would be accretive in 2010. Prices have fallen for fertilizers, along with other commodities. However, there has been some slight improvement in recent weeks, implying the market has hit a bottom.
Wednesday, February 25, 2009
Fertile Territory
Agrium bids $3.4B for CF, seeking to bust up the target's own offer for Terra.
If you're looking for signs that the world economy will resume its growth, you might find them in the fertilizer industry. While the group does have recession-resistant characteristics -- people have to eat -- the current spate of takeover activity is a sign that the companies think investors are underestimating their prospects.
On Wednesday, Canadian agricultural products company Agrium (nyse: AGU - news - people ) said it had submitted an unsolicited $3.4 billion cash-and-stock takeover bid to American rival CF Industries Holdings as a way to widen its footprint in the nitrogen and phosphate fertilizer markets. CF, which was noncommital, would have to abandon its bid for smaller rival Terra Industries as a condition of the offer.
Shares of CF Industries Holdings (nyse: CF - news - people ) jumped $6.70, or 12.1%, to $62.28, in afternoon trading in New York, Agrium fell $3.22, or 8.0%, to $37.08. Terra slipped 3.3%, or 82 cents, to $24.00.
Under the terms of the offer, stockholders of CF would receive one common share of Agrium and $31.70 in cash for each of their shares. The $68.78 per share proposal represents a premium of 10.4% to the current trading price.
"Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain," said Chief Executive Michael M. Wilson of Agrium, adding that combined revenues would be almost $14.0 billion.
But the bid is conditioned on CF dropping its hostile takeover offer for Terra Industries (nyse: TRA - news - people ) made in mid-January, which Terra rejected later that month. (See "CF Courts Terra With A $2B Offer.") In early February, CF Industries vowed to go hostile with its bid, now worth $2.9 billion. Terra said CF's all-stock bid undervalues Terra and would not create value for shareholders of either company.
CF said its directors will evaluate Agrium's proposal carefully and advise its shareholders in due course. While it may prefer to buy Terra, a deal in which it would be the top dog, the Agrium bid makes a certain amount of sense.
..forbes.com
If you're looking for signs that the world economy will resume its growth, you might find them in the fertilizer industry. While the group does have recession-resistant characteristics -- people have to eat -- the current spate of takeover activity is a sign that the companies think investors are underestimating their prospects.
On Wednesday, Canadian agricultural products company Agrium (nyse: AGU - news - people ) said it had submitted an unsolicited $3.4 billion cash-and-stock takeover bid to American rival CF Industries Holdings as a way to widen its footprint in the nitrogen and phosphate fertilizer markets. CF, which was noncommital, would have to abandon its bid for smaller rival Terra Industries as a condition of the offer.
Shares of CF Industries Holdings (nyse: CF - news - people ) jumped $6.70, or 12.1%, to $62.28, in afternoon trading in New York, Agrium fell $3.22, or 8.0%, to $37.08. Terra slipped 3.3%, or 82 cents, to $24.00.
Under the terms of the offer, stockholders of CF would receive one common share of Agrium and $31.70 in cash for each of their shares. The $68.78 per share proposal represents a premium of 10.4% to the current trading price.
"Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain," said Chief Executive Michael M. Wilson of Agrium, adding that combined revenues would be almost $14.0 billion.
But the bid is conditioned on CF dropping its hostile takeover offer for Terra Industries (nyse: TRA - news - people ) made in mid-January, which Terra rejected later that month. (See "CF Courts Terra With A $2B Offer.") In early February, CF Industries vowed to go hostile with its bid, now worth $2.9 billion. Terra said CF's all-stock bid undervalues Terra and would not create value for shareholders of either company.
CF said its directors will evaluate Agrium's proposal carefully and advise its shareholders in due course. While it may prefer to buy Terra, a deal in which it would be the top dog, the Agrium bid makes a certain amount of sense.
..forbes.com
The Fertilizer Disorder
Canadian fertilizer giant Agrium Inc.(AGU) made a $3.6 billion hostile bid for U.S. rival CF Industries Holdings Inc.(CF) on Wednesday with the aim of tripling its presence in the global phosphate and nitrogen markets.
The bid, which is a 30% premium to CF's Tuesday close, offers its investors a cash and share deal worth $72 apiece. Each CF share would be exchanged for one Agrium share and $31.70 cash under the proposed terms. However, Agrium said its proposal was conditioned on CF dropping its pursuit of Terra Industries Inc.(TRA).
CF Industries formally made a $2.4 billion hostile bid for Terra on Monday. The Terra board had rejected the offer last month, saying it substantially undervalued the company. CF, however, still remains interested in the deal. The merger of Terra with CF would create the largest global producer of nitrogen-based manure used for most crops.
Agrium Chief Executive Mike Wilson said, 'Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio.
Prices of nitrogen and phosphate fertilizers have declined steadily since the later half of 2008. Under these conditions, if Agrium acquires CF Industries, it would save $150 million in costs and generate revenue of nearly $14 billion annually.
Agrium said its offer is not subject to financing conditions as it has sufficient cash and committed financing underwritten by Royal Bank of Canada and Bank of Nova Scotia to fund the cash portion of the proposal. This helps the company to pursue CF even amid the stringent credit markets. Deerfield, Illinois-based CF Industries said it would evaluate Agrium's offer carefully.
CF Industries jumped more than 12% to $62.40 at noon while Terra fell 4% to $23.85 and Agrium slumped nearly 8% to $37.16 on the New York Stock Exchange..zacks.com
The bid, which is a 30% premium to CF's Tuesday close, offers its investors a cash and share deal worth $72 apiece. Each CF share would be exchanged for one Agrium share and $31.70 cash under the proposed terms. However, Agrium said its proposal was conditioned on CF dropping its pursuit of Terra Industries Inc.(TRA).
CF Industries formally made a $2.4 billion hostile bid for Terra on Monday. The Terra board had rejected the offer last month, saying it substantially undervalued the company. CF, however, still remains interested in the deal. The merger of Terra with CF would create the largest global producer of nitrogen-based manure used for most crops.
Agrium Chief Executive Mike Wilson said, 'Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio.
Prices of nitrogen and phosphate fertilizers have declined steadily since the later half of 2008. Under these conditions, if Agrium acquires CF Industries, it would save $150 million in costs and generate revenue of nearly $14 billion annually.
Agrium said its offer is not subject to financing conditions as it has sufficient cash and committed financing underwritten by Royal Bank of Canada and Bank of Nova Scotia to fund the cash portion of the proposal. This helps the company to pursue CF even amid the stringent credit markets. Deerfield, Illinois-based CF Industries said it would evaluate Agrium's offer carefully.
CF Industries jumped more than 12% to $62.40 at noon while Terra fell 4% to $23.85 and Agrium slumped nearly 8% to $37.16 on the New York Stock Exchange..zacks.com
Fertilizer Deal Becomes Bizarre Love Triangle
When looking for hints on how a merger will turn out, never rule out the arbitragers.
Arbitragers are investors who bet on whether mergers that are announced will actually go on to completion. And, ever since fertilizer maker CF Industries announced its unsolicited $2 billion takeover offer for Terra Industries, arbs were convinced that another bidder would show up for either CF or Terra. The deal’s stakes were high — at least in the fertilizer industry — where the CF and Terra would have such high market share that some analysts were concerned it would trigger an antitrust review.
One person familiar with CF’s plans rejected the possibility of another bidder repeatedly. But, today, the arbs were vindicated as Agrium announced a $72 a share offer for CF.
The bid turned a staid fertilizer deal into a fascinating love triangle. Agrium CEO Mike Wilson urged CF to drop Terra: “We expect to achieve significant operating synergies - well in excess of those contemplated in CF’s proposal to acquire Terra Industries Inc. - and expect the combination to provide many benefits to the customers, suppliers, and employees of both Agrium and CF, as well as the communities in which both companies operate.”
For CF, any other offer is a complication for its own hostile offer for Terra, which has been running like clockwork so far. The offer for Terra was cheered by the markets and on Monday CF officially launched its tender offer — along with a plan to place representatives on Terra’s board.
The next negotiation hurdle for CF and Terra would be the price. Terra and some analysts that cover the company believe that CF’s bid is too low.
CF made an all-stock offer for Terra. Investors have pushed CF’s shares so high that its bid is now worth $23.60 a share, a 49% premium to Terra’s 30-day stock price.
On Jan. 16, CF’s bid was worth just $20.51 a share, a 34% premium to Terra’s average price.
Oppenheimer analyst Joseph Gomes estimated, however that CF should be prepared to pay two to four times its current offer for Terra. He estimated that the appropriate price would be anywhere between $3.65 billion to $9.1 billion.
Gomes’s estimates were based on recent comparable deals: Mosaic’s sale of its Mosaic nitrogen fertilizer business, Saskferco Products, to Yara International for $1.6 billion and Agrium’s purchase of UAP Holdings, a deal that completed in 2008. According to Gomes’s analysis, the Mosaic deal implied a value for Saskferco at an enterprise value-to-earnings before interest, taxes, depreciation and amortization of 7.9 times. Using the same valuation for Terra, CF should be paying anywhere between $7.3 billion to $9.1 billion for Terra. “Even if we discount the multiples by 50%, this still suggests a fair value for Terra of $3.65B-$4.55B, substantially in excess of the $2.0B value of CF’s proposal,” Gomes wrote earlier this month.
The UAP deal, similarly, implied a value of 12 times EV/EBITDA, which would imply Terra’s value at around $3.3 billion, according to Gomes.
But all is not lost. While Terra rejected CF’s offer as too low, CF chairman and CEO Stephen Wilson responded that perhaps there was room for negotiation:
“Our conversations with our stockholders (who significantly overlap with your stockholders) also lead us to believe that we have no reason to consider changing the terms. However, we have communicated to you that we are prepared to review any information you can provide us that you believe justifies a change in terms, and we are prepared to keep an open mind in that regard.”..wall street journal
Arbitragers are investors who bet on whether mergers that are announced will actually go on to completion. And, ever since fertilizer maker CF Industries announced its unsolicited $2 billion takeover offer for Terra Industries, arbs were convinced that another bidder would show up for either CF or Terra. The deal’s stakes were high — at least in the fertilizer industry — where the CF and Terra would have such high market share that some analysts were concerned it would trigger an antitrust review.
One person familiar with CF’s plans rejected the possibility of another bidder repeatedly. But, today, the arbs were vindicated as Agrium announced a $72 a share offer for CF.
The bid turned a staid fertilizer deal into a fascinating love triangle. Agrium CEO Mike Wilson urged CF to drop Terra: “We expect to achieve significant operating synergies - well in excess of those contemplated in CF’s proposal to acquire Terra Industries Inc. - and expect the combination to provide many benefits to the customers, suppliers, and employees of both Agrium and CF, as well as the communities in which both companies operate.”
For CF, any other offer is a complication for its own hostile offer for Terra, which has been running like clockwork so far. The offer for Terra was cheered by the markets and on Monday CF officially launched its tender offer — along with a plan to place representatives on Terra’s board.
The next negotiation hurdle for CF and Terra would be the price. Terra and some analysts that cover the company believe that CF’s bid is too low.
CF made an all-stock offer for Terra. Investors have pushed CF’s shares so high that its bid is now worth $23.60 a share, a 49% premium to Terra’s 30-day stock price.
On Jan. 16, CF’s bid was worth just $20.51 a share, a 34% premium to Terra’s average price.
Oppenheimer analyst Joseph Gomes estimated, however that CF should be prepared to pay two to four times its current offer for Terra. He estimated that the appropriate price would be anywhere between $3.65 billion to $9.1 billion.
Gomes’s estimates were based on recent comparable deals: Mosaic’s sale of its Mosaic nitrogen fertilizer business, Saskferco Products, to Yara International for $1.6 billion and Agrium’s purchase of UAP Holdings, a deal that completed in 2008. According to Gomes’s analysis, the Mosaic deal implied a value for Saskferco at an enterprise value-to-earnings before interest, taxes, depreciation and amortization of 7.9 times. Using the same valuation for Terra, CF should be paying anywhere between $7.3 billion to $9.1 billion for Terra. “Even if we discount the multiples by 50%, this still suggests a fair value for Terra of $3.65B-$4.55B, substantially in excess of the $2.0B value of CF’s proposal,” Gomes wrote earlier this month.
The UAP deal, similarly, implied a value of 12 times EV/EBITDA, which would imply Terra’s value at around $3.3 billion, according to Gomes.
But all is not lost. While Terra rejected CF’s offer as too low, CF chairman and CEO Stephen Wilson responded that perhaps there was room for negotiation:
“Our conversations with our stockholders (who significantly overlap with your stockholders) also lead us to believe that we have no reason to consider changing the terms. However, we have communicated to you that we are prepared to review any information you can provide us that you believe justifies a change in terms, and we are prepared to keep an open mind in that regard.”..wall street journal
Agrium makes $3.6B offer for CF Industries
Agrium makes $3.6 billion cash-and-stock offer for CF Industries, seeks to thwart Terra deal
NEW YORK (AP) -- Agricultural products company Agrium on Wednesday offered $3.6 billion in cash and stock to buy CF Industries Holdings Inc. to expand its fertilizer business.
The offer comes about a month after CF Industries offered $2.1 billion to buy Terra Industries Inc.
"Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain," said Mike Wilson, Agrium's president and chief executive.
Deerfield, Ill.-based CF Industries said in a statement it has received the offer and will evaluate it carefully.
CF Industries made an all-stock offer for Terra Industries of Sioux City, Iowa, on Jan. 15. Under the proposal, Terra Industries shareholders would have received 0.4235 of a CF Industries share for each Terra share held.
Terra Industries' board unanimously rejected the offer, saying the bid was not in the best interest of the company or its shareholders because it undervalued Terra. But CF Industries said it remains unwavering in its support of the deal and on Monday launched an exchange offer for Terra.
Wednesday, Agrium said it is offering CF Industries shareholders $76 per share, a 37 percent premium over the company's $55.58 closing price Tuesday. Each CF share would be swapped for one Agrium share and $31.70 cash under the proposed terms.
The acquisition is not subject to a financing condition, Agrium said, noting it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the offer's cash portion.
The funding portion is noteworthy given the current tattered state of the credit markets.
Agrium says it expects the combined company to have revenue of nearly $14 billion and noted the transaction offers shareholders of CF Industries annual savings of $150 million, better than the proposed deal with Terra Industries.
The Calgary, Alberta-based company says its proposal is conditioned on CF terminating its pursuit of Terra.
Shares of CF Industries rose $6.19, or 11.1 percent to $61.77, while Agrium shares fell $3.73, or 9.3 percent, to close at $36.57. Terra shares shed 97 cents, or 3.9 percent, to $23.85.
NEW YORK (AP) -- Agricultural products company Agrium on Wednesday offered $3.6 billion in cash and stock to buy CF Industries Holdings Inc. to expand its fertilizer business.
The offer comes about a month after CF Industries offered $2.1 billion to buy Terra Industries Inc.
"Adding CF's strong North American nitrogen, phosphate and extensive crop nutrient distribution assets to Agrium's broader global wholesale and retail capabilities would greatly enhance our existing portfolio and enable us to create a premier global franchise across the entire agricultural value chain," said Mike Wilson, Agrium's president and chief executive.
Deerfield, Ill.-based CF Industries said in a statement it has received the offer and will evaluate it carefully.
CF Industries made an all-stock offer for Terra Industries of Sioux City, Iowa, on Jan. 15. Under the proposal, Terra Industries shareholders would have received 0.4235 of a CF Industries share for each Terra share held.
Terra Industries' board unanimously rejected the offer, saying the bid was not in the best interest of the company or its shareholders because it undervalued Terra. But CF Industries said it remains unwavering in its support of the deal and on Monday launched an exchange offer for Terra.
Wednesday, Agrium said it is offering CF Industries shareholders $76 per share, a 37 percent premium over the company's $55.58 closing price Tuesday. Each CF share would be swapped for one Agrium share and $31.70 cash under the proposed terms.
The acquisition is not subject to a financing condition, Agrium said, noting it has sufficient cash resources and committed financing underwritten by Royal Bank of Canada and The Bank of Nova Scotia to fund the offer's cash portion.
The funding portion is noteworthy given the current tattered state of the credit markets.
Agrium says it expects the combined company to have revenue of nearly $14 billion and noted the transaction offers shareholders of CF Industries annual savings of $150 million, better than the proposed deal with Terra Industries.
The Calgary, Alberta-based company says its proposal is conditioned on CF terminating its pursuit of Terra.
Shares of CF Industries rose $6.19, or 11.1 percent to $61.77, while Agrium shares fell $3.73, or 9.3 percent, to close at $36.57. Terra shares shed 97 cents, or 3.9 percent, to $23.85.
Intrepid Potash: Funny Business?
I have been looking into this company Intrepid Potash (IPI) at the behest of a reader who felt that there may have been some hanky panky going on. I will leave it up to my readers to draw their own conclusions from what I have found - better yet if any of you can shed some light on this it would be helpful.
My Take on IPI
According to initial prospectus filed on April 07, 2008 (registered users can download it here as a zip file: Intrepid Potash Prospectus Apr 23, 2008 2009-02-23 14:39:12 491.91 Kb) the company offered 24 mn shares at price band of $24-$26 per share (P/E band of 96.0x -104.0x). Subsequently according to Free Writing Prospectus filed on April 17, 2008 shares offered were raised to 30 mn with price band of $27-$29 (P/E band of 108.0x-116.0x). Later, the company filed another to offer 30 mn shares to public at $32 per share (P/E of 128.0x).
According to prospectus, the company intended to use the proceeds to acquire Intrepid Mining for $757 mn and re-pay debt of $82.5 mn and the balance $60 mn towards general corporate expenses. As per the cash flow statements for subsequent periods, the company seems to have allocated the IPO proceeds in line with the objectives stated in IPO. The company had used $87 mn for repayment of its long term debt and $893 mn to Intrepid Mining LLC.
Although, technically, the proceeds of IPO were used according to stated objectives, it is interesting to note that Intrepid Mining was controlled by the promoters with Harvey Operating and Production Company, Intrepid Production Corporation and Potash Acquisition, each having 40%, 40% and 20% stake, respectively in the Intrepid Potash.
Robert P. Jornayvaz III, Chairman of the Board and Chief Executive Officer of Intrepid Potash, had 100% ownership interest in Intrepid Production Corporation
Hugh E. Harvey, Jr, Executive Vice President of Technology and Director of Intrepid Potash, had 100% ownership interest in Harvey Operating and Production Company.
The company offered 30 mn (40%) shares to the public while the balance 44.8 mn was held by 3 promoters - Harvey Operating and Production Co (24%), Intrepid Production Corporation (24%) and Potash Acquisition, LLC (12%). As of December 8, 2008 (last reported filings) Harvey Operating and Production Company and Intrepid Production Corporation both had reduced their holdings by 10% to 16.1 mn shares (each having 21.6% of total shares outstanding). On November 14, 2008, Potash Acquisition distributed 8.0 mn shares to its members and certain persons with indirect interests in Potash Acquisition according to pro rata interest in the company.
Insiders have sold a nominal amount of shares to the public worth $5.72 mn with an average price of $17.9 per share between November 24, 2008 to December 5, 2008.
As regards accounting shenanigans relating to inventory on the prima face, we believe the facts stated in your mail may not be correct. Although the company's inventory have increased marginally from $18.5 mn as of December 2007 to $$23.1 mn as of September 2008, its backed by 6% increase in sales. Inventory turnover days of the company as of September 2008 is also comparable at 37.2 compared with 31.6 as of December 2007.
Also, we wanted to highlight that the company's gross margins have increased substantially to 61% in 3Q2008 from 24.6% in FY07 on back of considerable increase in potash price. Average sale price of potash had increased 223% to $623 in 3Q2008 from $193 in 3Q2007...seeking alpha
My Take on IPI
According to initial prospectus filed on April 07, 2008 (registered users can download it here as a zip file: Intrepid Potash Prospectus Apr 23, 2008 2009-02-23 14:39:12 491.91 Kb) the company offered 24 mn shares at price band of $24-$26 per share (P/E band of 96.0x -104.0x). Subsequently according to Free Writing Prospectus filed on April 17, 2008 shares offered were raised to 30 mn with price band of $27-$29 (P/E band of 108.0x-116.0x). Later, the company filed another to offer 30 mn shares to public at $32 per share (P/E of 128.0x).
According to prospectus, the company intended to use the proceeds to acquire Intrepid Mining for $757 mn and re-pay debt of $82.5 mn and the balance $60 mn towards general corporate expenses. As per the cash flow statements for subsequent periods, the company seems to have allocated the IPO proceeds in line with the objectives stated in IPO. The company had used $87 mn for repayment of its long term debt and $893 mn to Intrepid Mining LLC.
Although, technically, the proceeds of IPO were used according to stated objectives, it is interesting to note that Intrepid Mining was controlled by the promoters with Harvey Operating and Production Company, Intrepid Production Corporation and Potash Acquisition, each having 40%, 40% and 20% stake, respectively in the Intrepid Potash.
Robert P. Jornayvaz III, Chairman of the Board and Chief Executive Officer of Intrepid Potash, had 100% ownership interest in Intrepid Production Corporation
Hugh E. Harvey, Jr, Executive Vice President of Technology and Director of Intrepid Potash, had 100% ownership interest in Harvey Operating and Production Company.
The company offered 30 mn (40%) shares to the public while the balance 44.8 mn was held by 3 promoters - Harvey Operating and Production Co (24%), Intrepid Production Corporation (24%) and Potash Acquisition, LLC (12%). As of December 8, 2008 (last reported filings) Harvey Operating and Production Company and Intrepid Production Corporation both had reduced their holdings by 10% to 16.1 mn shares (each having 21.6% of total shares outstanding). On November 14, 2008, Potash Acquisition distributed 8.0 mn shares to its members and certain persons with indirect interests in Potash Acquisition according to pro rata interest in the company.
Insiders have sold a nominal amount of shares to the public worth $5.72 mn with an average price of $17.9 per share between November 24, 2008 to December 5, 2008.
As regards accounting shenanigans relating to inventory on the prima face, we believe the facts stated in your mail may not be correct. Although the company's inventory have increased marginally from $18.5 mn as of December 2007 to $$23.1 mn as of September 2008, its backed by 6% increase in sales. Inventory turnover days of the company as of September 2008 is also comparable at 37.2 compared with 31.6 as of December 2007.
Also, we wanted to highlight that the company's gross margins have increased substantially to 61% in 3Q2008 from 24.6% in FY07 on back of considerable increase in potash price. Average sale price of potash had increased 223% to $623 in 3Q2008 from $193 in 3Q2007...seeking alpha
Tuesday, February 17, 2009
Deere Falls As Goldman Goes To Sell
DOWNGRADE COMES AHEAD OF WEDNESDAY’S PROFIT REPORT
Goldman Sachs isn’t even waiting to see the gory details of the fiscal first-quarter results due out of Deere (DE). It’s slashed its rating on the farm-equipment giant to a ‘’sell,” suggesting the downturn in the agriculture business could last through 2010.
Farm incomes fell last year for the first time in a decade, as crop prices peaked near mid-year, and fell by as much as half for some products by the close of 2008. When crop prices retreat, farmers - not surprisingly - tend to spend less money on tractors and other capital equipment. It’s difficult to judge when spending by farmers has or will bottom out, leaving most analysts watching the equipment sector bearish about the near-term profit prospects.
The company itself has suggested that profits for the period will drop about 25% - that would take per-share results down to about 63 cents from the year-earlier 83% - though it suggested that sales would increase 7%. Analysts have been a little more pessimistic about revenue: consensus says sales will decline about 11% for the quarter. Deere shares have fallen another 6% ahead of Wednesday’s earnings release.
Goldman Sachs isn’t even waiting to see the gory details of the fiscal first-quarter results due out of Deere (DE). It’s slashed its rating on the farm-equipment giant to a ‘’sell,” suggesting the downturn in the agriculture business could last through 2010.
Farm incomes fell last year for the first time in a decade, as crop prices peaked near mid-year, and fell by as much as half for some products by the close of 2008. When crop prices retreat, farmers - not surprisingly - tend to spend less money on tractors and other capital equipment. It’s difficult to judge when spending by farmers has or will bottom out, leaving most analysts watching the equipment sector bearish about the near-term profit prospects.
The company itself has suggested that profits for the period will drop about 25% - that would take per-share results down to about 63 cents from the year-earlier 83% - though it suggested that sales would increase 7%. Analysts have been a little more pessimistic about revenue: consensus says sales will decline about 11% for the quarter. Deere shares have fallen another 6% ahead of Wednesday’s earnings release.
Terra Nitrogen: Fertile Investment Ground?
Terra Nitrogen Company, L.P. (TNH) is a limited partnership that produces and distributes nitrogen fertilizer products. Its principal products are anhydrous ammonia (or ammonia) and urea ammonium nitrate solutions (UAN), which the Company manufactures at its facility in Verdigris, Oklahoma
The company reported FY 08 earnings per share of $14.90 compared to $10.90 for FY 07, representing a 36.73% increase. EPS for the MRQ is reported at $3.55, down from $3.59 in the December 07 quarter. Sales are up 41.92% from $636.308 to $903.017 for the year. The five year growth rate for sales is 17.73%.
Gross margins have expanded to $47.84%, well above the five year average of 29.01%. Net margins are hight at 46.77%, also well above the five year average of 27.33%.
Are these high growth rates sustainable? Current, fast-changing prices of agricultural commodities and fertilizers make it risky for farmers to invest in fertilizers. In many countries, it is anticipated that distributors and farmers will experience trouble in accessing credit to purchase agricultural inputs, including fertilizers. Where there are sufficient phosphorus and potassium reserves in soils, farmers are likely to rely temporarily on the reserves. Nitrogen should not be as greatly affected.
Nitrogen supply/demand conditions are tight, driven by strong nitrogen fertilizer demand worldwide. Production outages in exporting countries and delays in the commissioning of new capacity further tightens supply. World grain stocks remain at a record low despite two good consecutive harvests in 2007 and 2008. Projections by the Food and Agricultural Organization of the United Nations and the US Department of Agriculture point to a modest recovery in 2009.
We construct our estimate of TNH's value by developing risk-adjusted capitalization rates for our estimate of free cash flow. The reciprocal of the capitalization rate is the Price/Free Cash Flow multiple.
Risk Premiums
Market Value of Equity 11.65%
Book Value of Equity 13.57%
5-Year Average Net Income 11.19%
Market Value of Invested Capital 12.78%
Total Assets 14.02%
5-Year Average EBITDA 12.23%
Sales 12.83%
Number of Employees 15.68%
Average Operating Margin 9.36%
Coefficient of Variation of Operating Margin 14.31%
Coefficient of Variation of Return on Book Equity 12.75%
Mean Risk Premium 12.76%Projected Free Cash Flow per Share $35.04Projected Average Valuation $274.61
The company reported FY 08 earnings per share of $14.90 compared to $10.90 for FY 07, representing a 36.73% increase. EPS for the MRQ is reported at $3.55, down from $3.59 in the December 07 quarter. Sales are up 41.92% from $636.308 to $903.017 for the year. The five year growth rate for sales is 17.73%.
Gross margins have expanded to $47.84%, well above the five year average of 29.01%. Net margins are hight at 46.77%, also well above the five year average of 27.33%.
Are these high growth rates sustainable? Current, fast-changing prices of agricultural commodities and fertilizers make it risky for farmers to invest in fertilizers. In many countries, it is anticipated that distributors and farmers will experience trouble in accessing credit to purchase agricultural inputs, including fertilizers. Where there are sufficient phosphorus and potassium reserves in soils, farmers are likely to rely temporarily on the reserves. Nitrogen should not be as greatly affected.
Nitrogen supply/demand conditions are tight, driven by strong nitrogen fertilizer demand worldwide. Production outages in exporting countries and delays in the commissioning of new capacity further tightens supply. World grain stocks remain at a record low despite two good consecutive harvests in 2007 and 2008. Projections by the Food and Agricultural Organization of the United Nations and the US Department of Agriculture point to a modest recovery in 2009.
We construct our estimate of TNH's value by developing risk-adjusted capitalization rates for our estimate of free cash flow. The reciprocal of the capitalization rate is the Price/Free Cash Flow multiple.
Risk Premiums
Market Value of Equity 11.65%
Book Value of Equity 13.57%
5-Year Average Net Income 11.19%
Market Value of Invested Capital 12.78%
Total Assets 14.02%
5-Year Average EBITDA 12.23%
Sales 12.83%
Number of Employees 15.68%
Average Operating Margin 9.36%
Coefficient of Variation of Operating Margin 14.31%
Coefficient of Variation of Return on Book Equity 12.75%
Mean Risk Premium 12.76%Projected Free Cash Flow per Share $35.04Projected Average Valuation $274.61
Friday, February 13, 2009
Fertilizer Profits in the Pipeline?
Both Terra Nitrogen (NYSE: TRA) and spurned suitor CF Industries (NYSE: CF) told pretty much the same story when it came to fourth-quarter results.
Nitrogen (and in CF's case, phosphate) product prices were super strong compared to the prior year, even after accounting for the crash late in the quarter. Buyers, both nervous about macro conditions and anticipating further price weakness, went on strike, sending volumes plummeting. Terra's North American ammonia sales volumes dropped 30%, while CF's phosphate exports somewhat masked a 46% domestic sales plunge.
Along with other fertilizer firms such as Mosaic (NYSE: MOS), Agrium (NYSE: AGU), and PotashCorp (NYSE: POT), the two companies were quick to idle capacity in response to the demand drop-off. Terra idled two facilities in December, and CF entered 2009 operating its phosphate segment at only 40% of capacity.
I think the major difference here is the tone struck by the two firms with regard to the outlook for spring. There are several big questions looming regarding the overstuffed supply chain, the pricing standoff, and the size of the corn crop, to take but three.
Terra sounded quite optimistic on several counts. The firm argued for improving fundamentals, supported by a better supply/demand balance in nitrogen and lower input (i.e., natural gas) costs. The past month's pick-up in order activity was cited to support this sunny view. Terra is also restarting one of the idled facilities.
CF was more circumspect. The firm wouldn't come right out and say that orders are up, though they admitted as much in a roundabout way when pressed by one questioner on the conference call. CF is perhaps more cautious because of its phosphate segment, which faces "more near-term uncertainty" on account of its huge inventory overhang. Still, CF asserted that the big questions mentioned above are really just a matter of timing, rather than levels of demand.
Nitrogen (and in CF's case, phosphate) product prices were super strong compared to the prior year, even after accounting for the crash late in the quarter. Buyers, both nervous about macro conditions and anticipating further price weakness, went on strike, sending volumes plummeting. Terra's North American ammonia sales volumes dropped 30%, while CF's phosphate exports somewhat masked a 46% domestic sales plunge.
Along with other fertilizer firms such as Mosaic (NYSE: MOS), Agrium (NYSE: AGU), and PotashCorp (NYSE: POT), the two companies were quick to idle capacity in response to the demand drop-off. Terra idled two facilities in December, and CF entered 2009 operating its phosphate segment at only 40% of capacity.
I think the major difference here is the tone struck by the two firms with regard to the outlook for spring. There are several big questions looming regarding the overstuffed supply chain, the pricing standoff, and the size of the corn crop, to take but three.
Terra sounded quite optimistic on several counts. The firm argued for improving fundamentals, supported by a better supply/demand balance in nitrogen and lower input (i.e., natural gas) costs. The past month's pick-up in order activity was cited to support this sunny view. Terra is also restarting one of the idled facilities.
CF was more circumspect. The firm wouldn't come right out and say that orders are up, though they admitted as much in a roundabout way when pressed by one questioner on the conference call. CF is perhaps more cautious because of its phosphate segment, which faces "more near-term uncertainty" on account of its huge inventory overhang. Still, CF asserted that the big questions mentioned above are really just a matter of timing, rather than levels of demand.
Thursday, February 12, 2009
Agrium Can Weather the Storm
Agrium Inc. (NYSE: AGU - News), based in Alberta, Canada, is a major retailer of agricultural products and services in North and South America, a leading global wholesale producer and marketer of all three major agricultural macronutrients such as nitrogen, potash and phosphate, and a premier supplier of micronutrients and specialty fertilizers.
Agrium is growing through acquisition and organic expansion. The acquisition of United Agri-Products (UAP) is driving revenues and profits supported by an expanded product line in the major business segment. However, the company is affected by the global credit crunch resulting in postponement of fertilizer purchases by farmers.
Nevertheless, Agrium expects the situation to improve in the near future. The company also has a significant free cash flow. Therefore, we rate the shares a Buy with a target of $43.00.
Agrium is growing through acquisition and organic expansion. The acquisition of United Agri-Products (UAP) is driving revenues and profits supported by an expanded product line in the major business segment. However, the company is affected by the global credit crunch resulting in postponement of fertilizer purchases by farmers.
Nevertheless, Agrium expects the situation to improve in the near future. The company also has a significant free cash flow. Therefore, we rate the shares a Buy with a target of $43.00.
Wednesday, February 11, 2009
CF Industries Reports
CF Industries Holdings (NYSE: CF - News) reported results for the 4th quarter of 2008. Net earnings for the quarter were $3.59 per diluted share, compared to $2.38 in the 4th quarter of 2007. Net sales for the quarter totaled $1.07 billion, a 26% increase over the 4th quarter of 2007
The increase in sales can be attributed significantly to higher prices for all of the company's products. Nitrogen net sales were $705.6 million, up 23% from $603.7 million in the comparable quarter of 2007. Increased prices for all of the nitrogen products have more than offset the decline in volumes, driving net sales well above year-earlier levels.
The average selling price for ammonia was $653 per ton, up from $410 in the year-ago quarter; for urea, $480 per ton, up from $357 in the year-ago quarter; for UAN [a solution of urea and ammonium nitrate in water], $352 per ton, up from $239 in the year-ago quarter.
Net sales of phosphate totaled $366.4 million, 65% increase from the 4th quarter of 2007. Substantial price increases for phosphate products have more than offset lower volumes during the quarter. The average selling price was $906 per ton for DAP [diammonium phosphate], up from $431 in the year-ago quarter; and $903 per ton for MAP [monoammonium phosphate], up from $431 in the year-ago quarter.
During November 2008, the company completed its program, announced on October 27, 2008, to repurchase $500 million of its common stock. The company purchased 8.5 million common shares, representing about 15% of its outstanding common stock at September 30, 2008 at an average price of $58.96. The company had approximately 48.4 million shares outstanding authorization at December 31, 2008.
The increase in sales can be attributed significantly to higher prices for all of the company's products. Nitrogen net sales were $705.6 million, up 23% from $603.7 million in the comparable quarter of 2007. Increased prices for all of the nitrogen products have more than offset the decline in volumes, driving net sales well above year-earlier levels.
The average selling price for ammonia was $653 per ton, up from $410 in the year-ago quarter; for urea, $480 per ton, up from $357 in the year-ago quarter; for UAN [a solution of urea and ammonium nitrate in water], $352 per ton, up from $239 in the year-ago quarter.
Net sales of phosphate totaled $366.4 million, 65% increase from the 4th quarter of 2007. Substantial price increases for phosphate products have more than offset lower volumes during the quarter. The average selling price was $906 per ton for DAP [diammonium phosphate], up from $431 in the year-ago quarter; and $903 per ton for MAP [monoammonium phosphate], up from $431 in the year-ago quarter.
During November 2008, the company completed its program, announced on October 27, 2008, to repurchase $500 million of its common stock. The company purchased 8.5 million common shares, representing about 15% of its outstanding common stock at September 30, 2008 at an average price of $58.96. The company had approximately 48.4 million shares outstanding authorization at December 31, 2008.
Terra Industries Inc. (TRA) has reported 2008 4th quarter and full year results and the recent past was very good for the company (Call Transcript). I
Terra Industries Inc. (TRA) has reported 2008 4th quarter and full year results and the recent past was very good for the company (Call Transcript). I will take a quick look at how the company did and try to make a guess on what the future will bring.
First, for you income and Terra Nitrogen LP (TNH) fans, the company declared a distribution of $2.97 per unit. Shareholders for the entire 2008 earned $13.60 in distributions. Early in 2008 I recommended TRA vs. TNH when the net income distribution shifted in favor of the general partner, TRA. TNH shareholders are now getting $3.00 per share on the same income that a year ago would have earned them $4.50 (roughly). The current partnership agreement gives TRA about 40% of the net income off the top, then they pick up 75% of the distributions for the units they own.
For the 4th quarter TRA earned $1.65 per share, a 150% increase over the same quarter in 2007. The earnings were also in line with the $1.64 earned in the 3rd quarter of 2008. For the year TRA earned a record $6.20 per share, a 225% increase over 2007. According to Yahoo Finance the consensus estimate for the quarter and year were 92¢ and $5.52, pretty big misses. Revenue gains were made on higher selling prices as volumes for nitrogen, UAN and ammonia fell 12%, 16% and 30% respectively.
Going forward, this is what I see:
The biggest negative is that TRA’s product prices fell sharply at the end of the 4th quarter, forcing a $48 million writedown in inventories. The combination of lower sales volumes and lower prices could have a significant effect on the bottom line.
The positives list is a little longer: TRA idled a couple of plants when the global slowdown started cratering prices, allowing the company to do some needed upkeep and keep inventories under control. Natural gas, which is the major expense for the company, is at a 5 year low. Farmers skipped a significant portion of fertilizer application in the fall as fear of falling commodity prices took effect. They will need to make up those applications in the spring. Corn prices have recovered to about $3.80 from near $3.00 in December, and historically $4.00 corn is a very good number.
The earnings estimate on TRA for 2009 is about $3.00 per share. I believe the current pessimistic environment has that number at least $1.00 low. But at this point I really see Terra Industries as a value play with long term positive fundamentals. TRA has a market cap of $2.4 billion while it sits on $1 billion in cash and its 75% stake in TNH has a current value of $1.8 billion. TNH generates about 30% of TRA’s earnings. Also, at the end of Q3, TRA had $680 million in cash.
Although TRA has doubled from its recent low, I think 2009 will be a year of positive surprises for the company.
First, for you income and Terra Nitrogen LP (TNH) fans, the company declared a distribution of $2.97 per unit. Shareholders for the entire 2008 earned $13.60 in distributions. Early in 2008 I recommended TRA vs. TNH when the net income distribution shifted in favor of the general partner, TRA. TNH shareholders are now getting $3.00 per share on the same income that a year ago would have earned them $4.50 (roughly). The current partnership agreement gives TRA about 40% of the net income off the top, then they pick up 75% of the distributions for the units they own.
For the 4th quarter TRA earned $1.65 per share, a 150% increase over the same quarter in 2007. The earnings were also in line with the $1.64 earned in the 3rd quarter of 2008. For the year TRA earned a record $6.20 per share, a 225% increase over 2007. According to Yahoo Finance the consensus estimate for the quarter and year were 92¢ and $5.52, pretty big misses. Revenue gains were made on higher selling prices as volumes for nitrogen, UAN and ammonia fell 12%, 16% and 30% respectively.
Going forward, this is what I see:
The biggest negative is that TRA’s product prices fell sharply at the end of the 4th quarter, forcing a $48 million writedown in inventories. The combination of lower sales volumes and lower prices could have a significant effect on the bottom line.
The positives list is a little longer: TRA idled a couple of plants when the global slowdown started cratering prices, allowing the company to do some needed upkeep and keep inventories under control. Natural gas, which is the major expense for the company, is at a 5 year low. Farmers skipped a significant portion of fertilizer application in the fall as fear of falling commodity prices took effect. They will need to make up those applications in the spring. Corn prices have recovered to about $3.80 from near $3.00 in December, and historically $4.00 corn is a very good number.
The earnings estimate on TRA for 2009 is about $3.00 per share. I believe the current pessimistic environment has that number at least $1.00 low. But at this point I really see Terra Industries as a value play with long term positive fundamentals. TRA has a market cap of $2.4 billion while it sits on $1 billion in cash and its 75% stake in TNH has a current value of $1.8 billion. TNH generates about 30% of TRA’s earnings. Also, at the end of Q3, TRA had $680 million in cash.
Although TRA has doubled from its recent low, I think 2009 will be a year of positive surprises for the company.
Is Potash Corp. Overpriced?
Three years ago a single ton of fertilizer used to be worth $340, and in 2008 the price has jumped to $640. Since the summer of 2008 the price of grain commodities has crashed. As the world begins its sowing season, one must wonder,"will people be able to afford to buy fertilizer this year?" If not... then… Is POT over priced?
In this short qualitative piece, we will discuss key demand/market elements that many analysts and speculators are ‘bagging on’, and understand why the current POT price is unsustainable.
Demand: China will buy more!
China has been a driver of the commodity price hikes in the last several years, and fertilizer was no exception. As many readers are aware, China is experiencing major drought right now; this is due to Communist Government’s lack of planning and poor judgment. However, China’s drought will not substantially increase China’s purchase of fertilizers. This may shock some readers, but I beg readers to think one step farther. This is because fertilizers are ‘hygroscopic’, meaning they absorb moistures from the surrounding environment. The application of fertilizer during the drought will result in a disaster, as dusty wind (drought) will simply blow away the fertilizer on top of the dry soil.
What about ‘other’ parts of China? Wouldn't they use fertilizer to increase production? Well, other parts of China (i.e. deeper inland) suffer from lack of proper infrastructure and system that will not efficiently utilize the benefits of fertilizer. Fertilizer should be applied in such a way that it will go into the soil to promote soil rejuvenation for 'many' years, and such application require proper analysis and planning, something China is struggling with. One can always hope that the Chinese government will make ‘another’ foolish blunder in order to increase the crop yield, but China will not make the same mistake twice. Hope is not a strategy.
Demand: Asia’s other developing countries.
Asia’s developing countries (who happen to purchase bulk of fertilizers) are facing severe pressure from the IMF and the World Bank to stabilize their currency by safe-securing sufficient amount of foreign reserves (i.e. the U.S. dollar). The purchases of fertilizers are being delayed, and cancelled. The governments in Asia are promoting home-made fertilizers in order to substitute the import fertilizers.
Demand: North America’s need for more grain!
One might expect other countries will invest in fertilizers to increase their yield, and increase their market share in the industry. However, that is an armchair economic theory. Until very recently, the farming industry has been under severe stress. In many parts of North America, small farming communities disappeared and turned into ghost towns. It is no secret that many farmers have been living off of generous government subsidies. This is why so many corn farmers were excited by ethanol production schemes. For the first time in many decades farmers were able to make serious money from actual farming! Unfortunately, these farmers over-extended themselves with cheap credit, and are now paying the price. The low grain prices are forcing farmers to default on their new ‘tractors’ and ‘planting machines’. This is evident by the fact that growing numbers of farmers are going ‘bankrupt’. At this point in time the worry of fertilizer is at the bottom of many farmers’ check list.
Demand: Grain Rally!
In the past, the prices on fertilizers were ‘justified’ due to high grain prices. However, as grain prices tanked, so did the fertilizer market. Many analysts are still talking about $1000/ton fertilizer and some reporters cite $1500/ton! This means that these analysts are banking on high grain prices. Although we can appreciate their analysis, higher grain price doesn’t necessarily result in higher fertilizer price; and most importantly, we do not expect the rise of grain prices any time soon.
In many countries there is something called ‘wheat board’ and ‘quota’. The ‘wheat board’ guarantees individual farmers that the board will purchase grain from each farmer according to the ‘quota’ that farmers are entitled to. This also means that farmers can’t sell their crops beyond their quota. When times were good, this quota rule was ignored, and farmers used fertilizer to increase their yield. However, with the falling grain prices, there is now no incentive to buy fertilizer to increase the yield, and farmers are playing safe by producing only up to the limit of their quota. This is evident in South America where farmers are seeing their soy bean prices crashing down due to weak demand in Asia. The free-market at work.
Then there are POT-bugs
Since 2008, people have been talking about fertilizer’s value in protecting one’s investment from: ‘THE US DOLLAR CRASH’ and ‘INFLATION.’ Many claimed that fertilizers will hedge against the US dollar and inflation. However, there has been no credible proof that fertilizer stocks have hedged against the foreign exchange risk or the inflation. Such groundless ‘speculation’ is based on ‘hope’ and ‘fear’, the two most dangerous words every investor should stay away from. People must understand that fertilizers are not gold, not even close.
Summary: Yes, $90/share is too much!
The worldwide fertilizer demand is disappearing fast, and although ‘hope’ is keeping this stock up and running, the underlying fundamentals cannot be ignored. So, how will all this play out? The technical shows POT has hit multiple resistances/supports between Dec/Jan (support around $65 and resistance around $80) in the last several weeks. Based on the list of qualitative points, a short is recommended for POT with target price at $65/share.
In this short qualitative piece, we will discuss key demand/market elements that many analysts and speculators are ‘bagging on’, and understand why the current POT price is unsustainable.
Demand: China will buy more!
China has been a driver of the commodity price hikes in the last several years, and fertilizer was no exception. As many readers are aware, China is experiencing major drought right now; this is due to Communist Government’s lack of planning and poor judgment. However, China’s drought will not substantially increase China’s purchase of fertilizers. This may shock some readers, but I beg readers to think one step farther. This is because fertilizers are ‘hygroscopic’, meaning they absorb moistures from the surrounding environment. The application of fertilizer during the drought will result in a disaster, as dusty wind (drought) will simply blow away the fertilizer on top of the dry soil.
What about ‘other’ parts of China? Wouldn't they use fertilizer to increase production? Well, other parts of China (i.e. deeper inland) suffer from lack of proper infrastructure and system that will not efficiently utilize the benefits of fertilizer. Fertilizer should be applied in such a way that it will go into the soil to promote soil rejuvenation for 'many' years, and such application require proper analysis and planning, something China is struggling with. One can always hope that the Chinese government will make ‘another’ foolish blunder in order to increase the crop yield, but China will not make the same mistake twice. Hope is not a strategy.
Demand: Asia’s other developing countries.
Asia’s developing countries (who happen to purchase bulk of fertilizers) are facing severe pressure from the IMF and the World Bank to stabilize their currency by safe-securing sufficient amount of foreign reserves (i.e. the U.S. dollar). The purchases of fertilizers are being delayed, and cancelled. The governments in Asia are promoting home-made fertilizers in order to substitute the import fertilizers.
Demand: North America’s need for more grain!
One might expect other countries will invest in fertilizers to increase their yield, and increase their market share in the industry. However, that is an armchair economic theory. Until very recently, the farming industry has been under severe stress. In many parts of North America, small farming communities disappeared and turned into ghost towns. It is no secret that many farmers have been living off of generous government subsidies. This is why so many corn farmers were excited by ethanol production schemes. For the first time in many decades farmers were able to make serious money from actual farming! Unfortunately, these farmers over-extended themselves with cheap credit, and are now paying the price. The low grain prices are forcing farmers to default on their new ‘tractors’ and ‘planting machines’. This is evident by the fact that growing numbers of farmers are going ‘bankrupt’. At this point in time the worry of fertilizer is at the bottom of many farmers’ check list.
Demand: Grain Rally!
In the past, the prices on fertilizers were ‘justified’ due to high grain prices. However, as grain prices tanked, so did the fertilizer market. Many analysts are still talking about $1000/ton fertilizer and some reporters cite $1500/ton! This means that these analysts are banking on high grain prices. Although we can appreciate their analysis, higher grain price doesn’t necessarily result in higher fertilizer price; and most importantly, we do not expect the rise of grain prices any time soon.
In many countries there is something called ‘wheat board’ and ‘quota’. The ‘wheat board’ guarantees individual farmers that the board will purchase grain from each farmer according to the ‘quota’ that farmers are entitled to. This also means that farmers can’t sell their crops beyond their quota. When times were good, this quota rule was ignored, and farmers used fertilizer to increase their yield. However, with the falling grain prices, there is now no incentive to buy fertilizer to increase the yield, and farmers are playing safe by producing only up to the limit of their quota. This is evident in South America where farmers are seeing their soy bean prices crashing down due to weak demand in Asia. The free-market at work.
Then there are POT-bugs
Since 2008, people have been talking about fertilizer’s value in protecting one’s investment from: ‘THE US DOLLAR CRASH’ and ‘INFLATION.’ Many claimed that fertilizers will hedge against the US dollar and inflation. However, there has been no credible proof that fertilizer stocks have hedged against the foreign exchange risk or the inflation. Such groundless ‘speculation’ is based on ‘hope’ and ‘fear’, the two most dangerous words every investor should stay away from. People must understand that fertilizers are not gold, not even close.
Summary: Yes, $90/share is too much!
The worldwide fertilizer demand is disappearing fast, and although ‘hope’ is keeping this stock up and running, the underlying fundamentals cannot be ignored. So, how will all this play out? The technical shows POT has hit multiple resistances/supports between Dec/Jan (support around $65 and resistance around $80) in the last several weeks. Based on the list of qualitative points, a short is recommended for POT with target price at $65/share.
Wednesday, February 4, 2009
Anxiety Mounts in Agriculture
In October, I pondered whether there was agricultural angst ahead. The sector is seriously sagging -- with the curious exception of Archer Daniels Midland (NYSE: ADM) -- but psychology appears to be the driver here, rather than any real financial fragility.
I've been slowly gathering snippets from players in the space, so let's see if we can't synthesize a bit here.
The most bullish comments I'm seeing in the space are from the seeds and traits sultans like Monsanto (NYSE: MON), DuPont (NYSE: DD), and Dow Chemical (NYSE: DOW). DuPont, which has an extremely broad revenue base, recently forecast weakness across all its end markets, with the exception of agriculture. Dow says that farmers are in a "relatively strong position," and that the long-term fundamentals in the segment haven't changed. Monsanto remains a profit monster.
Engine builder Cummins (NYSE: CMI) saw strong demand for its agricultural wares through the fourth quarter, but most equipment makers have turned rather morose in recent weeks. CNH Global sputtered out, leading to a sectorwide sell-off last month. Lindsay followed up a week or so later, guiding irrigation sales down by 30% to 40% year-over-year. GPS guru Trimble Navigation saw agricultural sales grow by double digits in the fourth quarter, but, given "general nervousness" in the sector, only describes itself as guardedly optimistic today.
Cycling back to Lindsay, the company cited uncertain farm economics, given lower and volatile commodity prices. The firm described farmers' behavior as a deferral of equipment orders, which leaves the door open to an order boost in the following weeks. This is a very similar situation to the one described by the likes of Mosaic (NYSE: MOS) and PotashCorp (NYSE: POT).
Those fertilizer shops make a fair point that farmers can't hold back indefinitely. Mosaic even characterized the situation as a game of chicken. I think that may be a bit unfair, given the wobbly global economy. You can't blame anyone for being overly cautious in this environment, and given farmers' experiences with painful periods of lower crop prices during past cycles, they may have longer memories than most.
I'm afraid I don't have too definitive a conclusion here, but I would suggest that agriculturally inclined Fools keep a close eye on developments as we approach planting season. If farmers really go on a buyer's strike, business for many of the aforementioned firms will be grim. If prices stabilize, however, they may come back to the table soon..fool.com
I've been slowly gathering snippets from players in the space, so let's see if we can't synthesize a bit here.
The most bullish comments I'm seeing in the space are from the seeds and traits sultans like Monsanto (NYSE: MON), DuPont (NYSE: DD), and Dow Chemical (NYSE: DOW). DuPont, which has an extremely broad revenue base, recently forecast weakness across all its end markets, with the exception of agriculture. Dow says that farmers are in a "relatively strong position," and that the long-term fundamentals in the segment haven't changed. Monsanto remains a profit monster.
Engine builder Cummins (NYSE: CMI) saw strong demand for its agricultural wares through the fourth quarter, but most equipment makers have turned rather morose in recent weeks. CNH Global sputtered out, leading to a sectorwide sell-off last month. Lindsay followed up a week or so later, guiding irrigation sales down by 30% to 40% year-over-year. GPS guru Trimble Navigation saw agricultural sales grow by double digits in the fourth quarter, but, given "general nervousness" in the sector, only describes itself as guardedly optimistic today.
Cycling back to Lindsay, the company cited uncertain farm economics, given lower and volatile commodity prices. The firm described farmers' behavior as a deferral of equipment orders, which leaves the door open to an order boost in the following weeks. This is a very similar situation to the one described by the likes of Mosaic (NYSE: MOS) and PotashCorp (NYSE: POT).
Those fertilizer shops make a fair point that farmers can't hold back indefinitely. Mosaic even characterized the situation as a game of chicken. I think that may be a bit unfair, given the wobbly global economy. You can't blame anyone for being overly cautious in this environment, and given farmers' experiences with painful periods of lower crop prices during past cycles, they may have longer memories than most.
I'm afraid I don't have too definitive a conclusion here, but I would suggest that agriculturally inclined Fools keep a close eye on developments as we approach planting season. If farmers really go on a buyer's strike, business for many of the aforementioned firms will be grim. If prices stabilize, however, they may come back to the table soon..fool.com
Tuesday, February 3, 2009
CF Industries to go hostile in its bid for Terra
* CF to offer 0.4235 shares for every Terra share
* CF to launch exchange offer mid-month
* CF plans to nominate three directors for Terra's board
* Terra again says CF's bid is too low
NEW YORK, Feb 3 (Reuters) - Fertilizer maker CF Industries Holdings Inc (CF.N) on Tuesday said it plans to launch a hostile bid for rival Terra Industries Inc (TRA.N) later this month, moving forward with a bid that Terra has already rejected.
CF also said it plans to nominate three directors to replace three members of Terra's board at this year's annual meeting.
CF said it plans to start an exchange offer for Terra's common stock at the middle of the month. The offer would give Terra shareholder 0.4235 CF shares, currently worth about $20.66, for every Terra share.
Terra shares closed at $21.09 on the New York Stock Exchange on Tuesday.
Terra reiterated that it believes CF's bid does not present a compelling value for shareholders, as it is too low. It also said that many of its major shareholders have expressed support of Terra and its strategy.
"While we believe the Terra stockholders will support a combination by voting for our nominees, our preference continues to be to enter into a negotiated transaction," CF Industries Chief Executive Stephen Wilson said in a statement. "We are confident that our offer represents full and fair value."
Terra has a classified board with staggered terms. Three directors will be elected to serve a three-year term at this year's annual meeting.
While it does not have a 'poison pill' shareholder right's plan, it is incorporated in Maryland, which has some takeover laws that are favorable to targets. (Reporting by Michael Erman; Editing by Bernard Orr)
* CF to launch exchange offer mid-month
* CF plans to nominate three directors for Terra's board
* Terra again says CF's bid is too low
NEW YORK, Feb 3 (Reuters) - Fertilizer maker CF Industries Holdings Inc (CF.N) on Tuesday said it plans to launch a hostile bid for rival Terra Industries Inc (TRA.N) later this month, moving forward with a bid that Terra has already rejected.
CF also said it plans to nominate three directors to replace three members of Terra's board at this year's annual meeting.
CF said it plans to start an exchange offer for Terra's common stock at the middle of the month. The offer would give Terra shareholder 0.4235 CF shares, currently worth about $20.66, for every Terra share.
Terra shares closed at $21.09 on the New York Stock Exchange on Tuesday.
Terra reiterated that it believes CF's bid does not present a compelling value for shareholders, as it is too low. It also said that many of its major shareholders have expressed support of Terra and its strategy.
"While we believe the Terra stockholders will support a combination by voting for our nominees, our preference continues to be to enter into a negotiated transaction," CF Industries Chief Executive Stephen Wilson said in a statement. "We are confident that our offer represents full and fair value."
Terra has a classified board with staggered terms. Three directors will be elected to serve a three-year term at this year's annual meeting.
While it does not have a 'poison pill' shareholder right's plan, it is incorporated in Maryland, which has some takeover laws that are favorable to targets. (Reporting by Michael Erman; Editing by Bernard Orr)
Economic Woes Slow Food Demand, But Potash Prices Should Stay Strong
The fertilizer market has ground to a halt over the past couple of months as economic woes put a clamp on global food demand, but according to a co-authored report from UBS, investors in the sector can rest assured the downturn will be minor.
Analysts at UBS wrote in a research note to clients:
Clearly the world needs to eat and while the global economic crisis will impact food consumption growth rates we expect both meat and grain consumption to be flat to negative 1% year on year versus 2008.
They added that meat consumption during past recessions has grown at 0 to 1% during past recessions.
The analysts said potash volumes are likely to be down 5% year on year with consumption in urea and phosphate expected to grow respectively by 1.5% and 3%.
Potash prices, meanwhile, are expected to stay strong at $700 per tonne, while urea and phosphate prices remain under pressure due to supply/demand weakness. The analysts forecast urea at $250 to $300 per tonne and phosphate at $250 per tonne.
As such, the investment firm prefers potash producers over urea producers, naming Potash Corp. of Saskatchewan Inc. (POT) and Agrium Inc. (AGU) among its favourite stocks..seeking alpha
Analysts at UBS wrote in a research note to clients:
Clearly the world needs to eat and while the global economic crisis will impact food consumption growth rates we expect both meat and grain consumption to be flat to negative 1% year on year versus 2008.
They added that meat consumption during past recessions has grown at 0 to 1% during past recessions.
The analysts said potash volumes are likely to be down 5% year on year with consumption in urea and phosphate expected to grow respectively by 1.5% and 3%.
Potash prices, meanwhile, are expected to stay strong at $700 per tonne, while urea and phosphate prices remain under pressure due to supply/demand weakness. The analysts forecast urea at $250 to $300 per tonne and phosphate at $250 per tonne.
As such, the investment firm prefers potash producers over urea producers, naming Potash Corp. of Saskatchewan Inc. (POT) and Agrium Inc. (AGU) among its favourite stocks..seeking alpha
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