MOS: Phosphate margins will eventually recover; Upgrade to Outperform

Research evidence excerpt

MOS: Phosphate margins will eventually recover; Upgrade to Outperform

The Mosaic Company

Target/Upside/Downside Scenarios Investment summary

Mosaic is a leading producer of potash and phosphateThe Mosaic Company

fertilizers and also has a production and distribution

45 125 Weeks 20DEC23 - 12MAY26 business in Brazil. The company has embarked on several

40 transformation initiatives in the past several years that have

35 resulted in improved operational efficiency, lower costs, and

30 TARGETTARGET 27.0027.00 rising cash flow.

CURRENTCURRENT 22.3922.39 20 Potential catalysts

15 Phosphate operations are set to improve with significant

10 reliability enhancements and equipment refresh during recent

100m turnarounds. Production has lagged run-rate levels in recent

50m years, but the company is targeting a return to 7-8Mt annual

2024 2025 2026

D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M run-rate as operations take hold. Higher production will also

MOS US Rel. S&P 500 COMPOSITE MA 40 weeks likely result in lower per tonne operating costs as fixed costs

Source: Bloomberg and RBC Capital Markets estimates for Target are spread across higher volumes.

Valuation

Potash costs should benefit from the ramp-up of the EsterhazyWe derive our $27 price target by attributing an equal

hydrofloat project. The project is set to increase capacity byweighting to our SOTP EV/EBITDA and DCF valuation. Our SOTP

400Kt at Esterhazy, Mosaic's lowest cost mine, and increaseEV/EBITDA analysis applies a 7.0x multiple to potash and a 5.0x

granulation capacity which allows for production of higher-multiple for the phosphate and Fertilizantes segments to 2026

priced granular product.EBITDA estimates. The phosphate and Fertilizantes multiples