New Coverage - Price Target $7.75
Canaccord starts coverage - target prices
INITIATING COVERAGE
Agrium (AGU : TSX : $97.80) - Buy - Target: $160.00
Keith Carpenter
Comment: Initiating coverage on Agrium with a BUY rating and $160.00 target
We are initiating coverage of Agrium with a BUY rating based on the
following conclusions:
Strong fertilizer markets throughout our forecast period. As we highlighted
in our sector piece, "The Modernization of the BRICs," we believe the
fertilizer market will be robust for years into the future, specifically
the potash and phosphate sectors. Prices are expected to remain strong as
supply will not be able to meet the growth in demand over the next five
years. With current pricing expected to rise into 2009 and 2010, earnings
should also continue to increase.
Strong margin expansion and production growth throughout our earnings
forecast. Agrium's earnings are derived from a blend of wholesale and
retail businesses that will combine to provide the company with increased
margins over our forecast period. Given the company's product offering in
wholesale, its leading position in U.S. retail, and our view on product
pricing throughout our forecast period, Agrium is expected to accumulate
significant earnings.
Stability of earnings over the long-run. Agrium's strategy of combining
wholesale and retail business provides greater stability in earnings over
the long run.
Valuation. We value the shares of Agrium on a 13x 2009E EPS of $12.42, for
a target price of C$160.00, representing a 63% potential return to the
current share price.
Athabasca Potash (API : TSX : $7.34) - Hold - Target: $9.50
Keith Carpenter
Comment: Initiating coverage of Athabasca Potash with a HOLD rating and
$9.50 target price
We are initiating coverage on the shares of Athabasca Potash with a HOLD
rating and 12-month target price of C$9.50 based on the following
conclusions:
Step change in potash pricing going forward. As we highlighted in our
thematic piece, "The Modernization of the BRICs", we believe the potash
market will be robust for years into the future. Prices are expected to
remain strong as supply will not be able to meet the growth in demand over
the next five years.
Low operating cost and strong margins. Athabasca Potash should benefit from
an operating cost comparable to those of the lowest-cost conventional
potash mines in Saskatchewan, ensuring strong margins for the company once
in production.
Financing partnerships forthcoming. There is unprecedented international
demand that will ensure the junior companies will have access to financial
partnerships. We believe this will reduce the greatest risk to the junior
players in Saskatchewan.
Improving management team. Athabasca Potash continues to build upon its
management and consultant team to push forward on all the major aspects of
the Burr project.
Valuation We value the shares of Athabasca Potash on a 1.0x NAV of $9.50,
using a long-term potash price of US$500 fob Vancouver, and a 10% discount
rate.
Phoscan Chemical (FOS : TSX-V : $1.70) - Buy - Target: $4.70
Keith Carpenter
Comment: Initiating coverage on PhosCan with a BUY rating and C$4.70 target
price
We are initiating coverage of the PhosCan Chemical with a BUY rating based
on the following conclusions:
Stronger phosphate markets going forward. As we highlighted in our thematic
piece, "The Modernization of the BRICs", we believe the phosphate market
has undergone a significant change that will lead to higher prices going
forward.
Lower-cost access to markets. PhosCan's proposed Martison project is
expected to benefit from a superior product in super phosphoric acid (SPA)
and lower-cost access to its target markets for both monoammonium phosphate
(MAP) and SPA.
Ability to capitalize on structural issues in the SPA market. Due to the
structure of the market and recent events, PhosCan has an opportunity to
serve the supply-constrained SPA market with a product offering that
provides flexibility in output.
Strong management team. PhosCan has done an excellent job in sourcing the
strongest management team in the junior fertilizer space, in our opinion,
to move the project through to production.
Valuation. We value the shares of PhosCan Chemical on a 1.0x NAV of $4.70,
using a long-term MAP and SPA price of US$650/t and US$1,250/t fob,
respectively, and a 10% discount rate.
Potash One (KCL : TSX : $4.23) - Speculative Buy - Target: $7.75
Keith Carpenter
Comment: Initiating coverage with a SPECULATIVE BUY rating and a target
price of C$7.75
We are initiating coverage of Potash One with a SPECULATIVE BUY rating and
a 12-month target price of C$7.75 based on the following conclusions:
Step-change in potash pricing going forward. As we highlighted in our
thematic piece, "The Modernization of the BRICs", we believe the potash
market will be robust for years into the future. Prices are expected to
remain strong as supply will not be able to meet the growth in demand over
the next five years.
Earlier to production and lower capex. We believe Potash One will be the
first to production of the Saskatchewan-based juniors in H1/13 at a lower
capital expenditure that will more than offset a higher operating cost of
production versus conventional mine operators.
Financing partnerships forthcoming. There is unprecedented international
demand that should ensure the junior companies have access to financial
partnerships. We believe this will reduce the greatest risk to the junior
players in Saskatchewan.
Valuation. We value the shares of Potash One on a 1.0x NAV of $7.75, using
a long-term potash price of US$500/t fob Vancouver and a 10% discount rate.
MagIndustries (MAA : TSX-V : $3.04) - Buy - Target: $8.50
Keith Carpenter
Comment: Initiating coverage on MagIndustries with a BUY rating and $8.50
target price
We are initiating coverage on the shares of MagIndustries with a BUY rating
and a 12-month target price of C$8.50 based on the following conclusions:
Step-change in potash pricing going forward. As we highlighted in our
thematic piece, "The Modernization of the BRICs", we believe the potash
market will be robust for years into the future. Prices are expected to
remain strong as supply will not be able to meet growth in demand over the
next five years.
First new potash project to enter production. We believe MagIndustries will
be the first Canadian-listed junior potash company to enter production when
Phase I of the Kouilou project is completed in 2011.
Existing infrastructure and low operating costs. The Kouilou project is
expected to benefit from existing infrastructure and low operating costs
that make the project stand out versus its peers operating in Canada.
Optionality with other projects. The company has additional value
extraction in its other three segments.
Valuation. We value the shares of MagIndustries on a 1.0x NAV of $8.57,
using a long-term potash price of US$500/t fob Pointe Noire and a 12%
discount rate.
Mosaic Company (MOS : NYSE : US$131.12) - Buy - Target: US$210.00
Keith Carpenter
Comment: Initiating coverage of Mosaic with a BUY rating and US$210.00
target price
We are initiating coverage of The Mosaic Company with a BUY rating based on
the following conclusions:
Strong fertilizer markets throughout our forecast period. As we highlighted
in our thematic piece, "The Modernization of the BRICs", we believe the
fertilizer market will be robust for years into the future, specifically
the potash and phosphate sectors. Prices are expected to remain strong as
supply will not be able to meet growth in demand over the next five years.
With current pricing expected to rise into 2009 and 2010, earnings should
continue to increase.
Strong margin expansion throughout our earnings forecast. Given the
company's position as the world leader in phosphate and the world's third- largest producer of potash, our view on product pricing throughout our
forecast period, and the firm's low operating cost in potash, Mosaic should
accumulate significant earnings.
Positioning the company for the future with added potash capacity. Mosaic
has implemented a growth strategy in potash that should position the
company for significant additional earnings contributions beginning in
2012.
Valuation. We value the shares of Mosaic on a 16x multiple of F2009E EPS of
US$13.03, for a target price of US$210.00, representing a 61% return to the
current share price.
Potash Corp. of Saskatchewan (POT : TSX : $219.22) - Buy - Target: $425.00
Keith Carpenter
Comment: Initiating coverage of PotashCorp with a BUY rating and C$425.00
target
We are initiating coverage of Potash Corporation of Saskatchewan Inc.
(Potash Corp.) with a BUY rating, Top-Pick -- adding to our Best Ideas
List, based on the following conclusions:
Strong fertilizer markets throughout our forecast period. As we highlighted
in our thematic piece, "The Modernization of the BRICs", we believe the
fertilizer market will be robust for years into the future, specifically
the potash and phosphate sectors. Prices are expected to remain strong as
supply will not be able to meet the growth in demand over the next five
years. With current pricing expected to rise into 2009 and 2010, earnings
should continue to increase.
Strong margin expansion throughout our earnings forecast. Given the
production profile, our view on fertilizer pricing throughout our forecast
period, the firm's low operating cost and growth profile over the same
period, Potash Corp. should be accumulating significant earnings, we
believe unmatched by its peers.
Adding to its position as world leader in potash production. Potash Corp.
has implemented a growth strategy that should see it adding on average 1mt
or production capacity every year through 2012.
Valuation. We value the shares of Potash Corp. on a 17x multiple of 2009E
EPS of $25.21, for a target price of C$425.00, representing a 103% return
to the current share price.
