K+S shares are down as UBS says recommendations may be cut by Investing.com

Investing.com — Shares of K+S (ETR: ) fell on Thursday after a note from UBS suggested the company may cut its 2024 EBITDA guidance during its next third-quarter earnings announcement.

At 5:04 am (0904 GMT), K+S was trading 6.5% lower at €10.880.

UBS analysts expect K+S guidance, which currently ranges between €530 million and €620 million, could be adjusted towards the lower end of that spectrum.

The brokerage revised its 2024 EBITDA forecast from €556 million to €536 million, citing lower potash prices and rising costs per tonne.

K+S is due to report its third-quarter results on November 14, and analysts at UBS expect EBITDA of 62 million euros, down from their previous estimate of 75 million euros.

This revised outlook comes in light of falling potash prices, which have fallen as production costs have risen.

The consensus estimate for third-quarter EBITDA was €78 million, while UBS expects revenue to also be lower than expected, forecasting €822 million versus a consensus of €842 million. euro.

Despite a reported 14% year-on-year increase in Brazil’s potash imports for the first eight months of this year, UBS says this growth has not translated into higher prices.

The brokerage notes that spot prices recently fell to around $285 a tonne, down from $310 earlier in the year, suggesting an oversupplied market.

This situation is compounded by a decline in farmer profitability as prices for key crops such as corn, wheat and soybeans have fallen – 9%, 5% and 19% year-to-date respectively – due to supply pressures.

The USDA’s latest quarterly inventory report reveals that grain stocks have risen substantially, indicating an overabundance that could further pressure prices.

UBS expects a decline in farmer profitability through 2025, forecasting a 13% year-over-year decline in farmer EBIT per acre for corn, which would fall 25% below the ten-year average.

UBS’s adjustments to its earnings forecast reflect not only current price pressures, but also expectations of higher costs associated with production and maintenance.

Analysts also lowered their potash price assumptions for the fourth quarter, which contributes to an estimated EBITDA of €146 million for the period. They foresee continued challenges for K+S as it navigates the complex global potash supply and pricing landscape.

UBS reaffirmed its “sell” rating on K+S, setting a price target of 10 euros per share. The brokerage’s concerns extend beyond short-term earnings and free cash flow risks stemming from lower potash prices; they also signal the long-term threats posed by increased potash supply from competitors such as BHP, which is expected to come online in 2026.