Grass Roots Fertilizer Stocks

[KastelCo]

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24479840

Morningstar on POT: Buy

7-Apr-08 08:29 pm Potash Corporation of Saskatchewan, Inc.

Fair Value $270

Consider Sell $405

Valuation

We're raising our fair value estimate to $270 per share
from $152. This increase stems largely from substantially
higher unit price and gross margin assumptions for
phosphates and potash. Our nitrogen price and margin
assumptions remain largely unchanged from our prior
valuation. With grain prices at or near historical highs and
fertilizer producers' inventories at or near historical lows,
the firm has managed to continue to increase prices at a
rate far in excess of our prior expectations. The firm's
price hikes have continued to gain momentum as it
recently pushed through sizeable increases for potash to
key export customers in India and Southeast Asia, and the
rapidly rising cost of phosphate rock and phosphoric acid
has placed further upward pressure on global prices as
marginal producers seek to recover these rapidly
escalating variable costs.

We think average potash selling prices should increase
substantially over the near term as supplies remain tight
and lofty grain prices continue to provide growers the
means to absorb rising input costs. We also expect that
PCS will be able to negotiate substantially higher pricing
with China in 2008 and beyond, as this key customer
continues to face rising demand and dwindling
inventories. Strong pricing and profitability in nitrogen and
phosphates should also continue for some time as demand
growth continues at a rate in excess of growth in new
supplies. We use a 9% cost-of-equity assumption in our discounted cash-flow model. A 1-percentage-point
increase in this key assumption would bring our fair value
down to $227, while a 1-percentage-point decrease would
raise it to $332.