Try $25 by the end of next week. Chart is ripe for a snapback relief rally. After 8 months of decimation, which only intensified the past few weeks, this one has zero resistance until $24-$26.
Sans the K+S buyout, and with low cost production coming on board in the next few years, POT balance sheet is now bulletproof again.
Of course, in the end, price/ton trumps all.
But without the extra debt of K+S, POT is a clear survivor, no matter what the next 5-10 years bring.
Can't speculate on the upside, but downside to the share price is limited from here.
A good place to be.
The CAPE (Cyclically Adjusted Price/Earnings) Ratio is price/earnings based on the average of the last 10 years of earnings. It is meant to help take cyclicality out of the equation.
For the S&P 500, the CAPE is currently 24.43x. For POT, it is 8.85x. (POT has averaged net earnings of $1.856B a year for the past 10 years).
Not to mention, POT has grown its low-cost capacity considerably in the past 10 years.
There will be a reckoning.
oh, come on, man,
the stock gets cut in half in 7 months flat, going from $38 to $19, and you're calling dead cat bounce after the stock is up 30 cents?
at least let us get some hope up before you crush us.
Guys. How long and low would Potash price/ton have to go to drive K+S potash out of business? How many years at $150-$200/ton? What if K+S got a cash infusion from someone (ie China) to pay off their debts for 50% of the mine rights? Or bought the operation with cash and kept it running?
Or even worse, if your plan works, and K+S gets shut down, potash prices will have to STAY under $250/ton for K+S to STAY closed. Is that the world you want to live in?
Well done, Abbaman.
Your plan is certainly safer, and makes POT a clear low-cost, low-debt winner.
Two things however:
1. I hate year-in, year-out buybacks. I prefer companies to be opportunistic and actually try to buy when the stock price is down. Of course, that doesn't look like much of a problem currently.
2. No one seems to give much value to the prospect of POT controlling a massive amount of additional market share. Consider this: what if POT bought K+S and simply shut down Germany? (I know - they are guaranteeing no workforce reduction - but let's just think for a minute about the power it would give them). With 7 tons of capacity off the market from Germany, the market could tighten considerably. And just as Legacy, Rocanville and Picadilly were coming online, still giving POT capacity of 20mm tons a year. In say a $400/ton environment, POT could be looking at $4B-$5B annual net income, which sure beats the $1B-$2B they are looking at now. All the while keeping Germany in their back pocket as an inexpensive brownfield that can be ramped up to keep competitors' greenfield projects at bay. It wouldn't be a very pretty way to win, but it possibly might be the best way to get it done.
I guess, in the end, I am OK with whatever way the K+S buyout goes, so long as they don't start bidding it up.
Good to know. It's a little scary to think about POT taking on an additional $8B in debt. At today's potash prices, an extra $500mm a year in interest is going to eat up all the extra profits from K+S. And if Potash prices drop to $200/ton, Morton Salt is going to have to subsidize the Potash side of operations, getting POT nowhere for all that debt. But I get it - - it's tax deductible - - so you save $150mm there - - and interest rates and the Euro are low - - so now is the time to do it.
$8B will seem like chump change at the top of the cycle. POT has averaged close to $2B net profit for both the last 5 years, and the last 10 years. And that's for a company who currently has 11mm in nameplate capacity. I am thinking if Potash/ton prices simply return to the 5 or 10 year average of around $400/ton, with nameplate capacity of 27mm tons, the combined entity would be looking at $4B-$5B profit a year.
Obviously, POT thinks they can manage taking on K+S through the bottom of the cycle, even if it lasts for years, and we see potash trading at $200/ton. At least they are smart trying this buyout when Potash prices and mining stocks are at 7-year lows.
In the end, the price/ton of potash will trump all. It's hard for anyone to know where supply and demand will be long-term. But as best I can tell, with growing earth population, growing meat eaters in Asia, limited arable land, climate change, ever-depleting Potash in soil levels, high cost for greenfield mines, and long lead times for brownfield opportunities, the few existing players will ultimately find a way for this market to live closer to value to farmers, rather than mining costs.
It's a gamble. But obviously one POT is willing to take, and one BHP is dying to take through Jansen at a required cost of about $400/ton.
Interesting dynamics here. K+S stock currently at 30.92 Euros. Normally I would say no chance with the arbitrage players sitting out a potential 33% gain to 40 Euros. But......if you look at K+S stock price since June, it is up slightly, while POT and MOS are down about......drum roll please......33%. Tells me deal is actually alive and well.
Forgetting about cost, it would be nice to control K+S and another 9.5mm tons of annual Potash production. Once Legacy, Rocanville, Picadilly were up to speed, combined entity of roughly 27mm annual tons of nameplate capacity, out of roughly 70mm worldwide, comes to about 38% . Not a monopoly, but before OPEC fell apart, it was only producing 40% of the world's crude oil.
Empire building with high-cost production? Maybe. My calcs show K+S net margins in 2014 on Potash/Magnesium was 15.5%. Whereas POT net margins in 2014 were 21.5%. And a similar spread in the first half of 2015 with K+S at 18% and POT at 23%. Definitely not moving to a better neighborhood, but K+S Potash division still cranking out $300mm-$400mm US annual net profit per year at 2015 levels, before Legacy mine and Morton Salt.
Now about cost. The proposed bid comes to $8.74B US.
One way to pay for it: In April 2009, at the absolute bottom of the market, DOW chemical spun off Morton Salt to K+S for $1.675B US after its buyout of Rohm & Hass. My calcs show Morton is good for about $150mm US profit a year. Gotta be worth $2B-$3B today, no? Time to spin that one off again.
And maybe they divest some of their other holdings to come up with $1B or $2B. These types of moves could fund over half the deal.
So where does the remaining $4B-$5B come from? With POT's market cap at $17.25B today, they could just take a 20% share dilution to fund it with an all stock deal. Or maybe they just take on $2B-$3B more in debt, so they only have to dilute shares 10%.
So long as they get creative, I think they can avoid flat out 33% share dilution.
Bill has been long and strong POT (Potash Corp) for a long time now. After HQY, it's his largest equity holding with about 1mm shares. Of course, that's chump change for WRB's overall portfolio, but still interesting to note what Bill's top pick is. He's held it through the the $30s and $40s. Well, what with the commodity wipe out over the past 4 years, POT is now selling for the low, low price of $20 a share. An intriguing company that is the world's largest supplier of Potash at 20% of global capacity, with low production costs, and with a 50% increase of low-cost production about to come on line. Price/sales is still ridiculously high for a commodity producer at 2.42x, but with a sustainable moat, these guys can simply pump out Potash cheaper than most, and have remained nicely profitable every year over the past 10 years. For certain, commodities are in a world of pain here, and more pain could still be ahead, but isn't that the definition of when to buy them?
Perhaps they are just throttling back supply to keep prices up? Perhaps we'll see the same from POT?
bobby2loaves here. Been watching POT, and waiting, for many a year now. Well, here we are at 7-year lows, and as of today, i'm 7/10 of the way into a full holding of this falling knife.
First order of business: can anyone explain why MOS announced a production decrease this week? On their latest quarter, they were gloating about sustainable MOP cash costs in the high $80s. What scares them so much about $260/ton?
Look, MT shares have been steadily destroyed since 2008, down from $104 to $6. And in just the past 4 months, the shares have been sliced halved from $12 to $6.
Surely, most of the losses are now baked into the stock (at least 94% of them). This company, who averaged $7B a year net profit between 2005-2008, is now trading at a market cap of $11B.
Now I know: things aren't looking good. Steel prices are in the tank, huge overcapacity exists, steel is getting dumped, and we haven't even gone into recession yet.
But I would have to imagine things weren't looking so great in 2001 either, when MT rose from $0.70 to $104.00 in 7 years flat.
MT is trading at 0.16x sales here at $6.66, not a bad entry point historically. Sure, 0.10x sales ($4.16 at current sales) is about as cheap as you'll ever see a decent heavy cyclical like this. But one would have to venture the bottom is somewhere close by - - unless MT goes under. I'm not thinking they will. Even if they had to dilute shares at $4, they could pay off their entire $16B in long-term debt by tripling the share base, and be sitting pretty at a market cap of $20B, a pristine balance sheet, and $70B annual sales. Not saying this would actually happen, or that it would make them magically profitable, but just saying they should be able to ride out the storm, even if it lasts for years.
So if death is not ahead, then glory?
Don't forget about the $5+ after tax book value in various un-markable investments Bill has been talking about this year. I guarantee those would be part of a buyout discussion. And would prop up book value to $43+, meaning a buyout of $65 would be 1.51x book or less. If Bill sold for less than $75, I would eat my hat.
With all this said, I don't think it will come to all that. This company is a well-oiled cash cow carefully built over a lifetime, and has increased steadily in value by 43,325% since 1973. Even a $75 buyout for a 44% premium here seems fairly short-sighted to me.
Because then what? Does Bill really want to pay taxes on his $1.5B payout, then try to invest the remaining $1B to make some dumb 5% return of $50mm a year, while he could keep the company running and rake in an annual return starting at $250mm, and then compounding from there?
Unless there is a skeleton in the closet, or Rob decides he wants to do something else with his life, I think it would be wise to own WRB for long-term grind-it-out profitability and not its buyout potential.
Sorry, Jumbie - - no idea. I try to understand this company from a philosophical level. But I have little idea about any particular moves until management mentions them at a conference or on a quarterly call. I can't even tell from this article if they're getting bigger or smaller in Miami. I can speculate all day long: greater/smaller presence in the Southeast, greater/smaller presence in South America, an office close to a Carribean location for tax purposes, or maybe just a simple real estate investment.
This WRB message board is as close as I come to my own website. Back before the indexes went up 215% in 6 years flat, I used to post on several other message boards about stocks I liked. But alas, WRB is the only thing I like anymore. The metals sector has certainly gotten more attractive over the past year, but it's just sacrilegious to buy heavy cyclical names whilst the S&P sits at all-time highs. Should the market ever correct 10% again in my lifetime, or dare I say 20% or more, I will likely be out looking for new names.
The recent exuberance isn't for WRB, per se. What with the Tokyo Marine recently buying out HCC, and ACE buying out Chubb, all the mid-sized players in the P&C insurance sector have been on fire past 3 months. And the ones with the highest gains appear to be the most likely targets for further industry consolidation.
Here's the last 3 months for some of the publicly traded players:
Here's an article that didn't show up in the mainstream press:
W.R. Berkley nabs Palm Beach offices for $18M
Palm Beach’s 324 Royal Palm Way has traded hands for $18 million, according to a deed recorded in Palm Beach County on Wednesday.
Armata Holdings sold the nearly 1-acre property. An LLC tied to W.R. Berkley Corporation, was the buyer.
The company is a publicly traded, Fortune 500 commercial lines property casualty insurance provider based in Greenwich, Connecticut.
The 26,430-square-foot office building was constructed in 1960, according to Palm Beach County property records. Rockpoint Group and Steeprock Capital sold the property for $12.35 million in 2012 to Gulfstream Investment Partners, which is now Armata Holdings.
In W.R. Berkley’s 2014 annual report, it listed the planned August 2015 sale of an office building in West Palm Beach. Its stock was trading at $55.80 as of Monday morning.
In August 2014, the company paid $150 million for the CityPlace Tower at 525 Okeechobee Boulevard in West Palm Beach.
- See more at: http://therealdeal.com/miami/blog/2015/08/06/w-r-berkley-nabs-palm-beach-offices-for-18m/#sthash.ym5psaUW.dpuf