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Real Client Managed Portfolio

Analyzing the real client managed portfolio of Mosaic Holdings, presented on October 18th, 2011, including industry analysis, business overview, competitor analysis, and recommendation.

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Real Client Managed Portfolio

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  1. Real Client Managed Portfolio Presented on October 18th, 2011 By: • Ran Mu • Frank Damian • Jionghan Dai • Joseph Kim • Han Yang

  2. RCMP’s Mosaic Holdings • 12/18/2009 – Bought 200 Shares at $55.00 for total price of $11,000.00 • 10/17/2011 – Closing Price at $54.49 • Unrealized Loss of • -$82.00 (-1.00%)

  3. Overview of Presentation • Industry Analysis • Mosaic Company • Overview of Business • Business Risks • Recent Developments • Competitor Analysis • History of Holdings • Multiples Analysis • DCF Model • Recommendation

  4. Agricultural Chemical Industry Simple products Capital intensive Highly concentrated Strategy • Big company: economies of scale • Small company: special chemicals for local markets Sources: First Research

  5. Products Nitrogen Potash Phosphate Fertilizers Herbicides Insecticides Sources: PotashCorp

  6. Industry & Macro Factors Population Crops Fertilizers Chemical raw materials

  7. Industry Factors—Raw Materials Population Crops Fertilizers Chemical raw materials • Sulfur • Ammonia • Sources: Bloomberg

  8. Industry Factors—Crops Price Crops Fertilizers Chemical raw materials Population • Oil Seeds • Grain Average annual growth rate: 1.97% Average annual growth rate: 5.31% • Sources: Bloomberg

  9. Macroeconomic Factors—Population Population Fertilizers Crops Chemical raw materials Average annual growth rate: 1.60% • Sources: Bloomberg

  10. Overview of Mosaic’s Business Two Primary Segments Phosphate Potash Source: Form 10-K, Mosaic Co., FY 2011, Pg 1

  11. Overview of Mosaic’s Business - Phosphate Source: Form 10-K, Mosaic Co., FY 2011, Pg 1-10

  12. Overview of Mosaic’s Business – Potash Source: Form 10-K, Mosaic Co., FY 2011, Pg 1-10

  13. Overview of Mosaic’s Business – Mines & Reserves Phosphate Mines Potash Mines

  14. Economies of Scale & Global Presence Potash Phosphate • Largest integrated phosphate producer in the world • Production (Fiscal 2011) • 57% N. American • 13% Global • Third largest producer of Potash globally • Production (Fiscal 2011) • 38% N. American • 12% Global Source: Form 10-K, Mosaic Co., FY 2011, Pg 1 Vertical Integration: • International sales offices and distribution centers • Presence in Brazil, China and India • Largest buyers with growing demand Source: Mosaic Investment Fact Sheet, Mosaic Co., October 2011, p. 2

  15. Business Risk Outcome????

  16. Recent News Source: Mosaic News Release, Mosaic Co., September 1st, 2011 Source: Mosaic News Release, Mosaic Co., October 12th, 2011 Source: Mosaic News Release, Mosaic Co., October 17th, 2011

  17. Recent News – The Cargill Transactions Source: Mosaic News Release, Mosaic Co., September 23rd, 2011

  18. Competitor Analysis • Crop nutrition companies compete primarily on the basis of delivered price • Other factors • Product quality • Cost and availability of raw materials • Customer service • Plant efficiency • Availability of product

  19. World’s 10 Largest Fertilizer Companies

  20. Competitor Analysis • Foreign competitors may have cost advantages • Cheaper raw materials • Less stringent regulatory requirements • Owned by government • Main competitors • Potash Corp. (POT) • Agrium Inc. (AGU) • CF Industries Holdings, Inc. (CF)

  21. Potash Corp. (POT) • World’s largest fertilizer company by capacity • One-fifth of global potash capacity • Potash is the core of the business • hold strategic investments in other potash-related businesses in South America, the Middle East and Asia

  22. Agrium Inc. (AGU) • Business Growth • Capacity expansion • Acquisition – acquired AWB, one of Australia’s largest agricultural retailer and grain commodity companies • Business operation • Retail business unit • Wholesale business unit • Advanced Technologies business unit

  23. CF Industries Holdings, Inc. (CF) • Acquired Terra Industries Inc. in Apr. 2010 • Became the largest nitrogen producer in North America • Two business segments • Nitrogen – 80% • Phosphate – 20%

  24. Company Performance Date: Oct. 14, 2011

  25. Company Performance Cargill Transaction

  26. Multiple Valuation <Change in Price of Product & Sales and Net Income>

  27. Multiple Valuation <Business Factors> • Growth has been generated by the change in price, not by increase in sales • Mosaic doesn’t have control on the price -> increases risk of investment • Increase in Price will be stabilized in future -> less growth opportunity • Due to the increase in demand, Stable Increase in Sales is expected <Other Factors> • Government Risks • Owner Risks

  28. Multiple Valuation

  29. Multiple Valuation • <2012 Earning Forecast = $2473 Million, EPS = $5> • Based on 1st quarter’s numbers, the price increase in product will continue • Sales Volume is expected to increase by 5% • Slightly lower margin is expected due to the closed mine and increase in cost of raw materials • <Multiple Analysis> • Owner Risk is a big discount factor for investors • Mosaic is facing 32.57% discount compared to competitors • Target PE ratio = 14.07 • Target Price = 14.07 * 4.71 = $66.21 per share

  30. Recommendation - HOLD Closely watch any developments with the following: • Transfer of Ownership – Cargill Transaction • Uncertainty with South Fort Meade Mine • Recovery of Global Economy and Rising Commodity Prices DCF Valuation = $55.45 Multiples Valuation = $66.21 50% Weight attributed to each Final Estimated Share Price = $60.83

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