K+S Shares Decline as UBS Predicts Lowered Guidance

Shares of K+S experienced a decline on Thursday after UBS issued a report indicating that the company may reduce its EBITDA guidance for 2024 in its upcoming third-quarter results.

At 5:04 am (0904 GMT), K+S shares were down 6.5%, trading at €10.880. UBS analysts predict that the company’s guidance, currently estimated between €530 million and €620 million, is likely to shift towards the lower end of this range.

The brokerage has cut its EBITDA forecast for 2024 from €556 million to €536 million due to falling potash prices and rising production costs. K+S is scheduled to announce its third-quarter results on November 14, and UBS now anticipates an EBITDA of €62 million, down from its earlier estimate of €75 million.

This revised outlook is influenced by declining potash prices and increasing production expenses. The consensus estimate for third-quarter EBITDA was previously €78 million, while UBS estimates revenue will also fall short, predicting €822 million against a consensus of €842 million.

Despite a reported 14% year-on-year increase in Brazilian potash imports for the first eight months of this year, UBS contends that this surge has not led to higher prices. The brokerage points out that spot prices have recently decreased to approximately $285 per tonne, down from $310 at the start of the year, indicating a market oversupply.

Additionally, the profitability of farmers has diminished, as prices for essential crops like corn, wheat, and soybeans have dropped by 9%, 5%, and 19% year-to-date, respectively, due to supply pressures. The latest USDA quarterly stocks report shows a significant rise in grain stocks, suggesting an oversupply that may further impact prices.

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

The adjustments in UBS’s earnings forecasts reflect both current pricing pressures and expectations of rising costs related to production and maintenance. The analysts have also revised their potash price assumptions for the fourth quarter, leading to a projected EBITDA of €146 million for that period. They anticipate ongoing challenges for K+S as the company navigates the complexities of global potash supply and pricing.

UBS has maintained a “sell” rating on K+S, setting a price target of €10 per share. Their concerns extend beyond immediate earnings and free cash flow risks tied to lower potash prices; they also highlight long-term challenges from increasing potash supply from competitors, with new capacity expected from companies like BHP as early as 2026.