Phosphate Holdings: An Undiscovered Agricultural Gem

Tag : Diammonium Phosphate


Following in the train of rising prices for virtually everyagricultural commodity, fertilizer prices have continued to climb. Diammonium phosphate, potash, urea, sulfur and so on have all goneup.

Take diammonium phosphate [DAP], for example. In the first quarterof last year, prices averaged some $250 a ton. In the first quarterof this year, prices have gone as high as $1200 a ton. Companiesthat sell these products have seen their share prices risealongside their products. Most of these will be well known toinvestors.

So, if one wants to invest in the fertilizer sector as a proxy foragriculture, where does one go? Potash ( POT ), Terra ( TRA ), Mosaic ( MOS ): all are at high prices and, while they may continue upward, theyno longer look much like bargains.



Phosphate Holdings ( PHOS.PK ) is the sole owner of Mississippi Phosphates, a producer ofdiammonium phosphate. Earnings have been on a tear; results fromcontinuing operations for the first quarter of 2008 were $8.9million, as compared to $3.6 million for first quarter 2007.

Management is guiding to a second quarter net income of $38 to $44million on EBITDA of $61 to $72 million. On fully-diluted 8.2million shares out, and a current price of $42 per share, andassuming that the company continues its second quarter earnings forthe foreseeable future, PHOS goes for a forward PE of about 2.

Why so cheap? One reason is that it's flying below the radar,trading on the pink sheets, with no analyst coverage. That's aboutto change. Management has indicated that it will seek SECregistration as well as an exchange listing.

Another possible reason for the cheap stock is that PHOS has nosource of phosphates of its own, but must buy it from OfficeCherifien des Phosphates, the Moroccan state phosphate monopoly.However, Phosphate Holdings has done business with them for yearsand sees no reason why the relationship will not continue. Also,Morocco is a relatively pro-Western state, whose king keeps a lidon things internally. While the price of phosphate rock willundoubtedly rise, supplies ought to be available. This is also thestock's main risk.

So, what it worth? Using comparable valuations of otherpublicly-traded fertilizer companies, such as TRA, MOS, or POT,shares of PHOS could be worth over $200, a five-fold increase fromwhere they are today.