K+S – Buy – Clearing the path

*We have a price target of EUR 12, implying a 70% upside

*Yesterday’s price did not reflect the full value of the deal and we also see further chance of upside within the Potash prices

*The company announced last night that they have now signed the agreement with Kissner Group to sell its Morton Salt business for an enterprise value of USD 3.2bn which clears out its debt burden (current market cap EUR 1.35bn, EV EUR 4.6bn)

*This main worry yesterday was that the deal could fall apart as a lot of investor’s burnt themselves back in 2015 when the company was in talks with POT US about a EUR 41 bid which broke after the potash industry dropped and the SDF board were according to reports not willing to negotiate to get the deal done – this worry is now out of the way

*The company has previously indicated that a sale would only reduce its debt level by USD 2bn which this valuation brings a huge upside to

*Bloomberg Intelligence highlights that an uptick in prices may finally be parting the clouds upgrades and permits in Germany have lessened output volatility, and new potash capacity in Canada is slowly realizing its low-cost potential

*SDF acquired the business back in 2009 for USD 1.7bn leaving a part upside potential (even though the bid includes debt)

*According to reports SDF first tried to sell a minority stake in the business

*Market was quite neutral on the stock going into this with 4 buys, 15 holds and 4 sells on ANR <GO> – this should also be good for the share price performance in the coming days as new buyers can come in

*Closing of transaction expected summer 2021 subject to customary conditions including regulatory approval

*Further consolidation within the industry is viewed as rather tricky due to antitrust

*Our DCF valuation comes in at  EUR 12 reflecting large upside potential