investment thesis
Mosaic Company (New York Stock Exchange: Moss) is one of the most stable companies in the fertilizer producers segment due to its high share in the global fertilizer market and its unique position in the fast growing Brazilian market. However, the The current market situation leaves much to be desired. Phosphorous and potash fertilizer prices continue to fall, which will also put pressure on sales prices and the company’s already low margin. We believe it is too early to invest in the company’s shares. The Mosaic Company’s rating is HOLD.
macroeconomic picture
According to the MOS, lower prices of basic types of fertilizers stimulate purchases. The Nutrient Affordability Index for North and South American growers fell to the “more affordable” zone for the first time since 2021.
runstick mosaic
With the stability of fertilizer and fertilizer prices Inventories are set to decline in Brazil and India, and the company expects demand for phosphate and potash fertilizers to rebound as early as 2023.
mosaic mosaic
prospects
Phosphate fertilizers
The Phosphate segment ended Q1 2023 with revenue of $1,382 million (-11% yoy), in line with our forecast of $1,401 million.
Total EBITDA for this segment was $382 million (-40% yoy), compared to our forecast of $272 million. The reason for the discrepancy was the following:
- Ammonia prices fell faster than we expected in the wake of lower natural gas prices. We expected the ammonia costs per ton of finished product to be US$627, when in fact it was US$605;
- A faster decline in sulfur prices. We expected sulfur costs per ton of finished product to be $332/tonne, when in fact it was $236/tonne as new capacities come online in China and demand weakens in anticipation of a global recession.
We have maintained our forecast for capacity utilization over the forecast period at 80% because demand from farmers is steadily recovering as their stocks decline. We continue to believe that phosphate fertilizer sales will reach ~7.8 million tons (+18% YoY) in 2023.
But we lowered the forecast for the average achieved price of phosphate fertilizers during the forecast period from $709 per ton to $654 per ton due to lower forecasts for DAP/MAP prices through 2024 as China is likely to lift restrictions on fertilizer exports while the rhetoric on Russian fertilizers is is declining and world prices for natural gas are declining. Due to the oversupply of sulfur in the market, we have lowered the forecast for the sulfur cost per ton of fertilizer production (part of the costs) from $305/ton to $217/ton for 2023, and from $289/ton to $205. tons for the year 2024.
Given the combination of these factors, we raised our segment profit forecast from $982m (-56% yoy) to $1,195m (-46% yoy) for 2023, and from $642m (-46% yoy)/yr) to $896m (-25% annually) for 2024.
Investment Champions
potash fertilizers
Total revenue for the potash fertilizer segment was $907 million (-14% yoy) in the first quarter of 2023, down 17% from our forecast of $1,094 million. The difference is attributed to:
- Selling prices are lower than expected ($475/ton vs. our estimate of $599/ton).
EBITDA was $474 million (-27% YoY), compared to our estimate of $528 million. The 10% disparity was driven by lower revenue in Q1 2023 than we expected.
As with phosphate fertilizers, farmers are steadily depleting their stocks of potash fertilizers. The company expects global demand for potash fertilizers to return to the level of 64-67 million tons in 2023, after declining by 15% year-on-year to 60 million tons in 2022.
We continue to see company capacity utilization at 83%, sales volume of 9mt (+11% per annum) in 2023, and maintain a forecast of 9.8mt (+9% per annum) for 2024.
Despite the unchanged forecast for shipments, we lowered the forecast for EBITDA from $3,046 million (-2% annually) to $2,461 million (-21% annually) for 2023 and from $3,097 million (+26 % annually) to $2,611 million (+6% yoy) due to lower forecast selling prices from $585/ton to $463/ton for the assessment period through 2024.
Investment Champions
Fertilizer sales in Brazil
The Fertilizer Sales segment in Brazil ended the first quarter of 2023 with revenues of $1,343 million (-10% yoy), in line with our forecast of $1,313 million.
Sales volume increased 14% year-on-year to 2,080,000 tons compared to our estimate of 1,720,000 tons. Physical volume of sales is rebounding faster than we expected amid the ongoing correction of fertilizer prices, making them more affordable for farmers.
Total EBITDA was $3 million (-99% YoY), compared to our estimate of $44 million. This discrepancy was driven by higher total costs, which came to 100% of revenue, against expectations of 95%, in light of higher sulfur and ammonia prices in the Brazilian market.
We lowered the segment EBITDA forecast from $299 million (-71% annually) to ($167) million for 2023 and set it at $305 million for 2024 as selling prices are falling faster than production costs, which is partially offset by increased sales volume.
Investment Champions
evaluation
The fair value price per share is $37. The stock’s target value was obtained by averaging estimates for the next four quarters.
Investment Champions
Conclusion
We believe Mosaic is not an ideal stock to earn more alpha in a bear market due to the low phosphate and potash price situation. However, Mosaic has exposure to the phosphate and potash markets that separate it from its closest peers. Also, Mosaic will be reaping the gains from the market recovery in Brazil and India. The Mosaic Company stock rating is HOLD.
