In my last post ‘How to value a fertiliser company‘ I explained the industry and what to look at when valuing a company within it. In this post I am going to compare the players in the industry and see which look most compelling to investigate further.
The table below shows some of the biggest companies in the US, with one Norweigen and another German company thrown in the mix. It shows the % breakdown of sales by the three most common types of commodity in the production of fertiliser: N, P and K.
I have also added some classic comparison metrics such as Gross Margin, EBIT margin and Return on Invested Capital so that we can assess each company.
Fertiliser Company Comparison
The first thing you’ll notice on this list is that the companies have very different mixes of NPK in terms of sales. You can see by comparing the EBIT margins of TNH and CF to MOS that Nitrogen (N) commands far higher margins in the US than Phosphorus (P) or Potassium (K). This is driven by the subsidies for US corn and ethanol for biofuels.
We also have natural gas in the US at record lows due to the huge increase in supply brought about by shale gas coming online. Such record low prices cannot remain forever, and there is already signs of a slight recovery. But with the permanent increase in supply they will most likely remain reasonable for the foreseeable future.
ROIC is high across the whole industry, but most pronounced in the Nitrogen heavy producers. When looked at in conjunction with the Price / Earnings ratio, almost all the companies appear to be very attractively valued and these kinds of numbers are what prompted me to look at the companies in the first place.
What strikes me the most is that Potash Group (POT) are trading at a higher P/E ratio than the combined CF Industries (CF) and Mosaic (MOS) P/E ratios, despite the combination having a similar product mix and a net cash position as opposed to net debt.
This suggests to me that CF and MOS could be attractive investments. TNH also looks interesting but are 70% owned by CF so I won’t look at them in isolation. IPI has a valuation which looks quite ludicrous compared to the others.
I’m going to look at CF Industries (NYSE:CF) as it looks the most promising prospect to me, and will do an analysis of the company and decide whether or not it is a good investment. It will be in depth so needs a full post to itself.