Dusseldorf While the high energy prices are causing a slump in profits in many sectors, the mining group K+S is receiving considerable momentum in its fertilizer business from the increased prices.
As the MDax group announced on Wednesday, the Executive Board expects a significantly higher profit in the current financial year than initially targeted: Instead of operating earnings before interest, taxes, depreciation and amortization (Ebitda) of up to 1.9 billion euros, K+S is now hiring Earnings of 2.3 to 2.6 billion euros in prospect.
The company cited the dramatically increased prices for fertilizers as one of the reasons, the growth of which exceeded the higher costs for energy, logistics and materials. Accordingly, the expectation for the free flow of capital, which should no longer be 600 to 800 million euros after deduction of any special effects, but should be between 1 and 1.2 billion euros. The forecast is based on the assumption that there will be no production interruptions as a result of a gas shortage.
Recently, the shortage of natural gas had led to production problems for numerous fertilizer producers. The European market leader for nitrogen fertilizers from Norway recently announced that it would reduce the capacity utilization of its plants to 45 percent due to the high energy prices.
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Natural gas accounts for around 80 percent of production costs. Fertilizer prices had risen considerably even before the Ukraine war.
Belarus is canceled as a supplier
This is mainly due to the fact that Russia is the world’s largest exporter of fertilizers. But because Russian trade with many countries has been significantly restricted since the outbreak of war, suppliers from other countries are benefiting.
It is true that K+S does not produce nitrogen fertilizer based on natural gas, but so-called basic fertilizer, which consists of potassium chloride obtained in mining. Nevertheless, the group is benefiting from the price rally: because Belarus, an important supplier of potassium chloride, is missing due to the sanctions.
The increase in the forecast was rewarded on the stock exchange with price increases for K+S. At times, the price of the MDax group rose by more than 6.5 percent after the market capitalization had more than doubled since the beginning of the year due to the favorable environment.
Analysts like Chetan Udeshi from the US investment bank JP Morgan still see upside potential: Just a few days ago, the money house changed its recommendation from “sell” to “buy” and increased the target price from EUR 12.50 to EUR 44.50. The share is currently trading at EUR 34.57.
Supply bottlenecks and high energy prices formed a positive environment for fertilizer companies that will shape 2022 and maybe even 2023, the analyst wrote in a study presented on Friday. The year-long downward trend in the share, which hit a low of EUR 5.28 in March 2020, seems to have stopped for the time being.
More: K+S CFO leaves abruptly – successor will not come until 2023