Thursday, 30 July 2015

Potash Corp: look at the target more than the acquirer

Potash Corp's numbers today of course was about more than just their own business.  As I detailed here a few weeks ago the company's bid for the German sector peer K+S inevitably raised some questions.  They talked about 'diversification' as a rationale for the deal there plus the advantages of infrastructure and distribution for the build-out of the Legacy K+S asset and that their Euro41/share offer is fair and full.  I would disagree as I talked about at the above link.  They will have to go hostile and possibly bid up.

Unsurprisingly management preferred to keep the main focus of the call on the Potash Corp business.  Here there was both good and bad news.

The better news is that China remains 'strong' and they believe there will be a record year of imports.  However note that sequentially 2014-2015 only China and India are expected to see better shipments...but even this was couched a little bit with some acknowledgement of macroeconomic uncertainty.

Reflecting this and some general negative commodity impacts (including US/Brazil weakening demand, greater competitive supply environment) they tweaked down the top of their FY15 earnings range.  The last time I wrote specifically about the company (link here) I talked about a sub US$30 a share level as being of interest from a value perspective.  During the last month we have slipped back below this level (and as noted in the 10 year long chart below back down to levels not seen since the dark days of 2009)...


...but my fears re the next stage of the K+S bid keeps me a little cautious despite the current 5%+ dividend yield.  

My instinct more at prevailing is to look for opportunities to buy K+S below the Euro35/share level in the potash space per se...


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