August 13, 2008 / 5:30 AM / in 9 years

UPDATE 2-K+S profit leaps, sees no end to potash price surge

(Adds comment, share price, details)

By Mantik Kusjanto

FRANKFURT, Aug 13 (Reuters) - Potash maker K+S SDFG.DE said on Wednesday its quarterly profit surged by five times and that the fertiliser boom is set to continue thanks to demand from farmers seeking to boost output as crop prices remain high.

The upbeat outlook sent K+S shares up 4.4 percent to 72 euros by 1021 GMT, compared with a 0.9 percent increase in the DJ Stoxx pan-European chemicals sector index .SX4P.

K+S, the world’s No.4 potash supplier, said worldwide demand would grow about 4 percent annually over the next few years while supply remained tight.

“It is also becoming ever clearer that the capacity growth in the potash industry ... will at best only be able to keep up with this demand growth, so that potash will remain in short supply,” Chief Executive Norbert Steiner said in a statement.

Potash Corp of Saskatchewan (POT.TO), the world’s No.1 potash producer, said last month current demand was exceeding supply and this would continue into next year.

In the second quarter, operating profit before market value changes from hedging transactions -- a K+S key measure -- leaped 370 percent to 326 million euros ($486 million), easily beating the 276 million euro average in a Reuters poll of 10 analysts.

Revenue rose 52 percent to nearly 1.2 billion euros.

Potash Corp, Agrium (AGU.TO) and Mosaic (MOS.N) have also benefited from the sustained strong demand for the key soil nutrient for plants in addition to nitrogen and phospate.

K+S repeated guidance it last raised in late July, saying it expected operating profit of 1.4-1.6 billion euros for 2008. The company last month also raised its standard potash prices in Europe to record prices of 600 euros per tonne.

Its potash prices were about 290 euros/tonne late last year.

The company expects revenue of 5.3-5.5 billion euros and earnings per share of 6-6.65 euros for 2008.

EXPENSIVE FERTILISER

“We remain positive on K+S as fundamentals in the foreseeable future remain favourable,” said Lutz Grueten, analyst at Kepler Landsbanki. “We do not think 2009 and 2010 consensus forecasts already reflect the full potential of K+S.”

Analysts also said the tight supply situation could worsen if the strikes at three mines owned by Canada’s Potash Corp dragged on. The mines account for 6 percent of world supply.

Looking ahead, K+S remained upbeat despite fears of a slowing economy that have pulled commodity prices down.

“Even after the price correction ... the current price level continues to guarantee an attractive yield potential (for farmers),” the company said. Benchmark U.S. corn futures prices have plunged more than one-fifth in the past month.

K+S shares have fallen 17 percent over the past month on slowdown worries which have hit other fertiliser stocks also.

But so far this year K+S shares have risen 76 percent, outdoing an 11 percent fall in the chemicals sector. K+S is the sector’s best-performing stock.

K+S shares trade at 7.3 times 2009 estimated profit, compared with Potash’s 7.8, Agrium’s 6.4 and Mosaic’s 7 times.

“The valuation (for K+S) is attractive. The question is how to maintain the strong earnings growth momentum,” AMB Generali Asset Management fund manager Heinz-Josef Stenten said.

K+S, a strong candidate to join the German blue-chip DAX .GDAXI index this year, produces about 7 million tonnes of potash a year, or about 13 percent of global supply.

K+S, which is also the world’s No.2 salt producer after China National Salt, is now worth 12 billion euros, up from 800 million in 2002 thanks to the thriving potash business. (Editing by Louise Ireland)

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