[Mar 27: Canpotex Potash Contracts Secured with India @ $625]
[Apr 2: Potash Makers Already Talking $750, up from $625]
[Apr 16: Chinese Agree to $576 Price Point for Potash]
[Apr 23: Potash Hits $1000 on Spot Market]
With that said, I still want to hear myself tonight, but going on my analyst team I'm creating a starter stake in Intrepid Potash here in the $48s, with a 400 share buy or $19,600. Due to market conditions and potential for commodity pullback, plus the need to listen to the conference call, I'm starting small - this is a 1.6% stake. I would like to add to this position in the low to mid $40s on a sector pullback, or if the name starts to run on me I'll add as well. I don't expect this to take off tomorrow, but if this pricing mechanism outlined above is accurate the current 2008 estimate of $2.24 EPS should be surpassed by Dec 31, 08; but this will be a very backloaded year.
With that said, coal is a 2009/2010 story and that has not stopped the stocks from creating massive moves in 6 weeks. So we won't know when the market will recognize inefficiencies - you just have to identify them and be ready to latch on, once the whale starts swimming. This new information makes me far more bullish on this name than I was 24 hours ago; again every $100 increase in potash = 70 cents EPS to Intrepid according to their filing today.
We estimate that every $10 per ton increase in the price of potash will have a pro forma annual earnings impact of approximately $0.07 per share.
According to their filing this is their current pricing scheme
Q1 Average: $390 (Jan $357, Feb $397, Mar $417)
Q2 Looks like this - Apr $503, May $532, Jun $582
As an added bonus it appears the vast majority of their sales are domestic in nature; with China short changed in their potash this year, I can see certain Asian friends knocking on their door in the coming year. Again... just about everything is about China nowadays - but while they can slowdown their orders of steel, concrete, metals - keeping their people warm (coal) or feeding them (fertilizer) is going to be a very difficult thing to stop doing; so even if China does implode under its own supersonic growth rate, feeding and energy needs should not suffer. (Note that does not mean American stockholders of companies in these areas won't panic sell on first hint of China slowdown, but that's just American stockholders being American stockholders - very little to do with fundamentals)
Long Intrepid Potash in fund and personal account
5 comments:
I wonder how the company estimates $0.07 EPS for every $10/ton increase of potash. The number does not match. The company produces about 225K ton of potash and 57K tons of Langbeinite per quarter, and it has slightly over 75m diluted shares. The tax rate is about 38%. Under the best scenario, every $10/ton increase will amount to less than 2.5 cents EPS increase. [ (0.225+0.057)*(1-38%)/75=$0.023 ]
Hi Gary,
I am not following your path of calculation. The Langbeinite is not part of it, and remember this is a full year (not quarterly)
So (roughly) take 900K tons x $10 = $9M extra for each $10 price increase
without accounting for taxes and assuming its a direct flow through (no gross margin hit) you divide $9M by 75M shares and you get $0.12 EPS increase
Some portion of that does not flow directly to the bottom line since it would be eaten by gross margin
and some portion is eaten by taxes
So this assumes 5 of the 12 cents is eaten by cost of goods, and some portion by taxes, seems reasonable to me.
Thanks
My bad, the EPS increase is annual rather than quarterly. Then the estimated $0.07 EPS increase does match with other information provided by the company.
Thanks.
On a relative basis to MOS and POT, how does that compare? It's not like after 1 year, any company is worse off than any other, and its the volumes that impact the earnings.
Understanding the desire to create an analytical following by analyzing the numbers in the press, you may also want to consider the non-numbers in your investment contemplation.
As you know the stock prices tend to move up on contemplation of good news and down on the announcements.
Currently there are many times the number of people in China, India and other rising economies of the world as in the USA and European centers of influence, whose populace have raising expectations of a better nutritional diet. (Well documented)
Crop yield curves on existing and newer, marginal lands are not in their favor. (Also well documented) After centuries, certainly decades of under fertilization of their over used farm lands, these countries are now having to expand farming into marginal lands. There is a certain amount of catch up on fertilization, which is need to feed their people.
With potash companies controlling the currently available supply and raising demand, the price increases will rule the day for at least the next 3 to 5 years.
Your analysis, based upon sound investment principals of outdated media reports will cause you to under invest in an area in which there is a market paradigm shift or major market move taking place.
Additionally, with the current political shift in Congress, which believes they can decide how much profit non-governmental companies can make, you may want to consider non-USA investments in this commodity, just to hedge your bets.
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