Friday, 1 February 2013

Potash Corp - 2012 Fourth Quarter Update

Potash Corp recently reported disappointing Q4 and full-year results for 2012, and offered restrained guidance for 2013.  Earnings per share are expected be $2.75-3.25 for 2013, compared to adjusted EPS of $2.76 in 2012.  Demand is forecast to be strong in the Americas and most of Asia, with India being the wild card.  While Potash Corp is often considered the industry's swing producer, India has stumbled its way into the position of swing buyer.  While management wisely assumed little change in India when offering guidance for 2013, they expressed guarded optimism that the Indian government will eventually put agronomics ahead of politics and revisit a flawed subsidy regime.  It's difficult to predict exactly when, however.

CEO Bill Doyle addressed the all-important issue of future potash supply.  He firmly reiterated his long-held position that fears of oversupply are overblown.  Brownfield expansions are likely to go forward, but at a slower pace, he predicted, while greenfield expansions will face significant delays.

The status of Potash Corp's interest in Israel Chemicals was not addressed in the quarterly conference call, either in management's prepared remarks or in the question and answer session with analysts that followed.  The political jockeying that will take place after the recent Israeli election is likely to put any big decisions on hold for months.  This is good news for Potash Corp shareholders, who should fear a purchase of Israel Chemicals, given that it would almost certainly be paid for using underpriced POT stock, in exchange for rather expensive ICL shares.  Warren Buffett has pithily explained that investing is simply "buying dimes for nickels"; Potash Corp management should bear this in mind, because at present any deal looks like it would be just the reverse.

On a happier note, the company significantly increased its dividend, to $0.28 per quarter, and the stock now yields better than 2.5%.

Here is my original investment analysis of Potash Corp. 

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