K+S Shares Drop Following UBS Report

K+S (ETR:SDFGn) shares declined Thursday after UBS suggested the company may lower its 2024 EBITDA guidance during its upcoming third-quarter results announcement.

At 5:04 am (0904 GMT), K+S was trading 6.5% lower at €10.880.

UBS analysts anticipate that K+S’s guidance, currently between €530 million to €620 million, will likely be adjusted towards the lower end.

The brokerage revised its 2024 EBITDA projection from €556 million to €536 million, citing lower potash prices and rising costs per tonne.

K+S is scheduled to report its third-quarter results on November 14. UBS expects an EBITDA of €62 million, down from a previous estimate of €75 million. This revision is driven by plummeting potash prices and increased production costs.

The consensus estimate for third-quarter EBITDA had been €78 million, while UBS foresees revenue lower than expected at €822 million, compared to a consensus of €842 million.

Despite a 14% year-on-year increase in Brazilian potash imports for the first eight months of the year, UBS argues this surge has not led to higher prices. Spot prices have recently dropped to around $285 per tonne, down from $310 at the start of the year, indicating an oversupply.

Additionally, farmer profitability is declining as prices for major crops—corn, wheat, and soybeans—have fallen 9%, 5%, and 19% year-to-date, respectively, due to supply pressures.

The USDA’s latest quarterly stocks report shows significant increases in grain stocks, suggesting overabundance could further pressure prices.

Looking to 2025, UBS forecasts a 13% year-on-year decline in farmer EBIT per acre for corn, which would be 25% below the ten-year average.

UBS’s adjustments reflect current pricing pressures and expectations of higher production and maintenance costs. They have also lowered their potash price assumptions for the fourth quarter, projecting EBITDA of €146 million for that period. K+S faces ongoing challenges amid a complex global potash supply and pricing landscape.

UBS has maintained a “sell” rating on K+S, setting a price target of €10 per share. Their concerns encompass not only short-term earnings and cash flow risks due to lower potash prices but also longer-term threats from increasing competition, particularly from BHP, which is expected to increase potash supply by 2026.