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Strategies & Market Trends : Value Investing
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E_K_S
To: E_K_S who wrote (65248)10/22/2020 3:57:11 PM
From: Elroy1 Recommendation  Read Replies (3) of 78787
 
Did you Deep Dive on UAN?

Not before I bought, that was also a diversification investment. A real loser. I have done a lot of modeling for them in the meantime though. My conclusion is we own a super loser here!

The problem with UAN seems to be that the price of the fertilizers that UAN sells is not cyclical. Fertilizer prices dropped, and we need to wait for them to rebound through industry consolidation or something. The way things are going it seems like UAN will be one of the first fertilizer companies to go bust, so UAN going out of business may be what the remaining players need to survive.

Someone points out that CF industries makes the same thing as UAN, and makes good money. But UAN has ~$670 million debt with a junk rate (9%??) whereas CF Industries has much less debt. So UAN throws off a bit of free cash flow from operations even at current low fertilizer prices, but the debt service eats it all up, and that's the story.

UAN needs fertilizer prices to rise to make any money, and the fertilizer prices are not rising. This year was supposed to be a big big planting year for corn. Fertilizer prices didn't go up. Other better capitalized fertilizer makers are probably increasing production volumes slightly as they can. and so UAN seems like it's doomed unless some miracle drives fertilizer prices higher. Not sure what that miracle may be, but that is what UAN's stock price requires.

Like Hurricane wipes out all of CF Manufacturing's production facilities. THAT would be good for UAN. Until then, I don't know what makes the fertilizer price go up.
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