Nutrien Announces $2 Billion Share Repurchase – Buyback Wednesdays

Commodity prices rise and fall to their unique set of drums and are often uncorrelated to the stock market, making them both an interesting and challenging asset class. Early in the pandemic we saw the price of lumber shoot up sharply as people stayed at home and undertook home improvement projects en masse. In early 2022, we saw something similar with wheat prices as Russia invaded the bread basket of Europe. Ukraine accounts for 50% of the world trade in sunflower oil, 15% of corn, 13% of barley and 10% of the world wheat market.

When food commodity prices rise, we see second order effects in the rise of input costs, mainly seed and fertilizer. This story played out in the past with the rise of the BRIC countries (Brazil, Russia, India and China) in the early 2000s and the corresponding rise in commodity prices. Companies like Intrepid Potash (IPI) and Potash Corp Of Saskatchewan that manufactured potash and nitrogen fertilizers saw huge run-ups in their stocks both before and after the 2008-2009 recession, followed by steep subsequent declines during the dead decade for commodities. These stocks have been resurrected from the dead in recent years and remain just as volatile as I remember from the mid-2000s.

Canadian fertilizer company, Nutrien Ltd. (NTR) announced a $2 billion share repurchase program on February 15, 2023, representing around 5% of its market cap at announcement. Nutrien is the largest producer of potash and the third largest producer of nitrogen fertilizer in the world. It was formed in 2018 through the merger of Potash Corp and Agrium. The company operates in over 40 countries and serves customers across all major agricultural networks. It also provides customers with complete agriculture solutions including nutrients, crop protection products, seeds, services, and digital tools.

With earnings season in full swing, we saw 20 companies announce buybacks last week, compared to 23 companies announcing share repurchases in the prior week.

Cheap Valuation:

Nutrien is valued at an EV/EBITDA of just over 4 and is the cheapest it has been since 2018. Commodity investors are very well aware of the cyclical nature of most commodities and how these stocks often appear cheapest at their cyclical peaks.

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