Investing.com -- K+S (ETR:SDFGn) shares were down on Thursday following a note from UBS suggesting that 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 expect that K+S's guidance, which currently ranges from €530 million to €620 million, is likely to be adjusted towards the lower end of this spectrum.
The brokerage has revised its EBITDA projection for 2024 from €556 million to €536 million, citing lower potash prices and increasing costs per tonne.
K+S is set to report its third-quarter results on November 14, and analysts at UBS expect an EBITDA of €62 million, a reduction from their previous estimate of €75 million.
This revised outlook comes in light of falling potash prices, which have dropped along with increased production costs.
The consensus estimate for the third quarter EBITDA had been €78 million, while UBS predicts revenue will also be lower than expected, forecasting €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 argues that this spike has not translated into higher prices.
The brokerage notes that spot prices have recently fallen to around $285 per tonne, down from $310 at the beginning of the year, suggesting an oversupply in the market.
This situation is compounded by a decline in farmer profitability, as prices for key crops like corn, wheat, and soybeans have dropped—9%, 5%, and 19% year-to-date, respectively—due to supply pressures.
The USDA's latest quarterly stocks report reveals that grain stocks are up substantially, indicating an overabundance that could further pressure prices.
UBS expects a decrease in farmer profitability moving into 2025, forecasting a 13% year-on-year decline in farmer EBIT per acre for corn, which would fall 25% below the ten-year average.
UBS's adjustments to its earnings forecasts reflect not just the current pricing pressures but also expectations of higher costs associated with production and maintenance.
The analysts have also lowered their potash price assumptions for the fourth quarter, which contributes to a projected EBITDA of €146 million for the period. They foresee continued challenges for K+S as it navigates the complex landscape of global potash supply and pricing.
UBS has reaffirmed its "sell" rating on K+S, setting a price target of €10 per share. The brokerage’s concerns extend beyond short-term earnings and free cash flow risks stemming from lower potash prices; they also flag longer-term threats posed by increasing potash supply from competitors like BHP, expected to come online in 2026.