Friday, 15 November 2013

K+S report Q3 2013

Q3, 2013, K+S, report, contrarian

My latest company addition arrived with their quarter report for 2013. The information and pictures in the short summary are coming from there and it can be found here. The market seem to have liked it because the stock directly jumped up a couple of %-age points (even above +5%) which then was dropping down over the day as far as being even minus and ending with around -4%. Is there a reason to be cheerful? or sad for that matter?

Well, for me I do not really see a reason to be cheerful, especially since I bought the stock due to what I considered to be an over reaction of the market that was based on a foolish statements from the Russian company Uralkali. They have high production capacity but that is more or less also the only thing they do have and for the long haul they just do not have the financial possibility to for a price dumping game since it would make themselves go insolvent unless more capital would either be brought in from the shareholders or via credit. K+S has however the financial stability to survive a longer period of selling their products at a much lower margin.

When we take a look at the figures then we see that:

Q3, 2013, K+S, key figures

What we see here is that in the running nine months the revenue has remained similar to 2012 but the earnings are down by -10%. The biggest reason for this is due to that they are pushing sales of salt (+200 millions and they are -200 millions with Potash) which has a much lower margin then what they have on the Potash and Magnesium part of their business. With salt the margin is for the running nine months 5.6% and for the Potash it has been at 30.6% so no wonder that the earnings have decreased.

When we observe purely the third quarter the results are not good especially since we now definitely see the effect of the Uralkali statement which has pushed down the margin by around 13% on the Potash compared to Q3 in 2012. The good news is that the margin on salt has increased by over 90% compared to Q3 in 2012 but let us not forget... +90% of an around 3% margin for Q3 2013 compared to in 2012 is very little in comparison to a significant change on a 23.4% margin which -13% is for the Potash part of the business between 2012 and 2013.

If all things go well for the rest of this year then I hope that I will get a dividend of 0.9 to 1.2 € per share since they tend to pay out around 40% of the earnings which would then give me a dividend of around 5% which is fully acceptable.

Due to the accident in beginning of October when three workers tragically died in the mine accident due to carbon dioxide blowout which you can read about here. The production has been completely stopped in that mine and now in mid November they partially started up the business again. As a shareholder in K+S I offer my condolences to the families of the three workers.

Conclusion: I managed to get an excellent German DAX company on the cheap and I am sure that I will keep these stocks for a very long time which means there will be no changes to my stock portfolio due to this quarter report. I do however look upon the report as being very neutral and I saw no reason for the direct jump up and neither the significant drop that happened during the day. If the downslope continues I would instead say that I might make another addition portfolio.

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