Download - Real Client Managed Portfolio
Real Client Managed Portfolio
Presented on October 18th, 2011 By:
• Ran Mu • Frank Damian • Jionghan Dai • Joseph Kim • Han Yang
RCMP’s Mosaic Holdings
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•12/18/2009 – Bought 200 Shares at $55.00 for total price of $11,000.00
•10/17/2011 – Closing Price at $54.49
•Unrealized Loss of -$82.00 (-1.00%)
Overview of Presentation
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• Industry Analysis • Mosaic Company
• Overview of Business• Business Risks • Recent Developments
• Competitor Analysis• History of Holdings• Multiples Analysis • DCF Model • Recommendation
Agricultural Chemical Industry
Simple products
Capital intensive
Highly concentrated
Strategy
Big company: economies of scale
Small company: special chemicals for local markets
4Sources: First Research
Products
Fertilizers
Herbicides
Insecticides
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Nitrogen
Potash
Phosphate
Sources: PotashCorp
Industry & Macro Factors
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Fertilizers CropsChemical
raw materials
Population
Industry Factors—Raw Materials
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FertilizersChemical raw materials
Crops Population
Sulfur Ammonia
•Sources: Bloomberg
Industry Factors—Crops Price
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Fertilizers CropsChemical raw
materials Population
Oil Seeds Grain
Average annual growth rate: 1.97% Average annual growth rate: 5.31%
•Sources: Bloomberg
Macroeconomic Factors—Population
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Fertilizers CropsChemical raw
materials Population
Average annual growth rate: 1.60%
•Sources: Bloomberg
Overview of Mosaic’s Business
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Source: Form 10-K, Mosaic Co., FY 2011, Pg 1
Two Primary Segments
Potash Phosphate
Overview of Mosaic’s Business - Phosphate
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Source: Form 10-K, Mosaic Co., FY 2011, Pg 1-10
Overview of Mosaic’s Business – Potash
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Source: Form 10-K, Mosaic Co., FY 2011, Pg 1-10
FacilityAnnual
operational capacity
Production Reserves Estimated Closing Year
Future mining
2011 2010 2009 2011 ReservesFour Corners 6.5 6.7 5.6 5.1 53.6 2020 Ona 245.5South Fort Meade 6 1.8 4.3 5.1 53.8 2025 Desoto 148Hookers Prairie 2 1.8 1.8 1.6 5.7 2014
Wingate 1.4 1 1.1 0.9 36.5 2048Total 15.9 11.3 12.8 12.7 149.6
Overview of Mosaic’s Business – Mines & Reserves
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Potash Mines
Facility Annual operational capacity Production Reserves Estimated close year
2011 2010 2009 5/31/2011Belle Plaine 2.3 2.2 1.5 1.8 792 2443Colonsay 1.6 1.1 0.8 1 239 2258Esterhazy 4.8 3 1.9 2.2 875 2381Carlsbad 1.5 1 1 0.8 260 2290Hersey 1.6 0.1 - 0.1 41 2421
Total 11.8 7.4 5.2 5.9 2207
Phosphate Mines
Economies of Scale & Global Presence
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Source: Mosaic Investment Fact Sheet, Mosaic Co., October 2011, p. 2
• Largest integrated phosphate producer in the world
• Production (Fiscal 2011)• 57% N. American • 13% Global
•International sales offices and distribution centers
•Presence in Brazil, China and India•Largest buyers with growing demand
Potash Phosphate
• Third largest producer of Potash globally
• Production (Fiscal 2011) • 38% N. American • 12% Global
Source: Form 10-K, Mosaic Co., FY 2011, Pg 1
Vertical Integration:
Business Risk
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Outcome????
Recent News
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Source: Mosaic News Release, Mosaic Co., September 1st, 2011 Source: Mosaic News Release, Mosaic Co., October 12th, 2011 Source: Mosaic News Release, Mosaic Co., October 17th, 2011
Recent News – The Cargill Transactions
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Source: Mosaic News Release, Mosaic Co., September 23rd, 2011
Competitor Analysis
• Crop nutrition companies compete primarily on the basis of delivered price
• Other factors
• Product quality
• Cost and availability of raw materials
• Customer service
• Plant efficiency
• Availability of product
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World’s 10 Largest Fertilizer Companies
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Competitor Analysis
• Foreign competitors may have cost advantages
• Cheaper raw materials
• Less stringent regulatory requirements
• Owned by government
• Main competitors
• Potash Corp. (POT)
• Agrium Inc. (AGU)
• CF Industries Holdings, Inc. (CF)
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Potash Corp. (POT)
• World’s largest fertilizer company by capacity
• One-fifth of global potash capacity
• Potash is the core of the business
• hold strategic investments in other potash-related businesses in South America, the Middle East and Asia
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Agrium Inc. (AGU)
• Business Growth
• Capacity expansion
• Acquisition – acquired AWB, one of Australia’s largest agricultural retailer and grain commodity companies
• Business operation
• Retail business unit
• Wholesale business unit
• Advanced Technologies business unit
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CF Industries Holdings, Inc. (CF)
• Acquired Terra Industries Inc. in Apr. 2010
• Became the largest nitrogen producer in North America
• Two business segments
• Nitrogen – 80%
• Phosphate – 20%
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Company Performance
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Market Capital P/E P/S P/BV
MOS 25.51 9.33 2.3 2.04
POT 43.39 18.47 5.69 5.36
AGU 11.98 11.02 0.87 1.91
CF 10.8 10.66 2.06 2.17
Revenue EBIT Net Income
MOS 10,832.8 2,982.5 27.5% 2,742.9 25.3%
POT 7,402.0 3,151.0 42.6% 2,454.2 33.2%
AGU 13,393.0 1,536.0 11.5% 1,087.0 8.1%
CF 5,130.4 1,918.0 37.4% 1,017.9 19.8%
Date: Oct. 14, 2011
Company Performance
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Cargill Transaction
Multiple Valuation
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<Change in Price of Product & Sales and Net Income>
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<Phosphate> 2006 2007 2008 2009 2010 2011 2012.1Q Avg.
Change in Sales Vol. 14.52% -11.82% 2.04% -1.49% 23.30% 8.39% 5.83%
Change in Price 10% 8% 94% 42% -55% 50% 17% 24%
<Potash> 2006 2007 2008 2009 2010 2011 2012.1Q Avg.
Change in Sales Vol. 19% 22% 8% -41% 10% 36% 9%
Change in Price 16% 0% 57% 131% -32% 2% 24% 28%
2006 2007 2008 2009 2010 2011 Avg.
Revenue Growth 33.95% 3.44% 78.10% 29.86% -36.15% 45.74% 25.82%
- Growth has been generated by the change in price, not by increase in sales- Mosaic doesn’t have control on the price -> increases risk of investment- Increase in Price will be stabilized in future -> less growth opportunity- Due to the increase in demand, Stable Increase in Sales is expected
Multiple Valuation
<Business Factors>
<Other Factors>- Government Risks- Owner Risks
Multiple Valuation
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Multiple Valuation
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Mosaic Potash Agrium CF Industries
Market Cap. 25.51 43.39 11.98 10.8
Current P/E 9.33x 18.5x 11x 10.7x
Average P/E(4yrs) 20.86x 20.85x 15.27x 15.05x
Average ROE(4yrs) 25.80% 32.00% 18.76% 23.32%
Profit Margin 25.30% 33.20% 8.10% 19.80%
<2012 Earning Forecast = $2473 Million, EPS = $5>-Based on 1st quarter’s numbers, the price increase in product will continue-Sales Volume is expected to increase by 5%-Slightly lower margin is expected due to the closed mine and increase in cost of raw materials
<Multiple Analysis>-Owner Risk is a big discount factor for investors-Mosaic is facing 32.57% discount compared to competitors-Target PE ratio = 14.07-Target Price = 14.07 * 4.71 = $66.21 per share
Recommendation - HOLD
• DCF Valuation = $55.45
• Multiples Valuation = $66.21
• 50% Weight attributed to each
• Final Estimated Share Price = $60.83
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•Transfer of Ownership – Cargill Transaction•Uncertainty with South Fort Meade Mine •Recovery of Global Economy and Rising Commodity Prices
Closely watch any developments with the following: