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Real Client Portfolio Management

Real Client Portfolio Management. Antti Zhang Patrina Kittipoomvong Shih-Wei Huang Angela Jiang Ying-Min Weng March 8, 2011. Agenda. Company overview Industrial Introduction Porter’s five forces analysis Comparables analysis SWOT analysis

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Real Client Portfolio Management

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  1. Real Client Portfolio Management Antti Zhang PatrinaKittipoomvong Shih-Wei Huang Angela Jiang Ying-Min Weng March 8, 2011

  2. Agenda • Company overview • Industrial Introduction • Porter’s five forces analysis • Comparables analysis • SWOT analysis • Financial statement analysis • Valuation • Recommendation

  3. Portfolio holdings • Dec 18, 2009 purchased 200 shares at $55.00 • As of March 7th ,2011 trading at $ 82.72 • 50.40% unrealized gain of $5,544.00 • Total value $16,544.00 Represent 14.35% of total portfolio value

  4. Company Overview • Incorporated in January 2004 through business combination of IMC Global Inc. and the fertilizer business of Cargill. • Headquarter in Plymouth, MN • Market capitalization 37.5 B • Leading producers and marketers of concentrated phosphate and potash.

  5. Company Overview • Cargill announcement in January 2011 to dispose its stake in MOS • Exchange offer for Cargill shareholders to exchange Cargill share for Mosaic share • Currently holds 64% • The transaction is expected to close in the second calendar quarter of 2011.

  6. Historical Price movement Source :http://finance.yahoo.com/q/ta?s=MOS&t=2y&l=on&z=l&q=l&p=m200,m20&a=&c=

  7. Company Overview Vertically integrated operation Mining of mineral resources • Production • Crop nutrient • Feed • Industrial Distribution to customers

  8. Business Segments • Phosphate • Crop Nutrition • MicroEssentials • Feeds • Potash • Crop Nutrition • Industrial Other Source: Mosaic 2010 10K

  9. Business Segments :Phosphate • Leader phosphate producer • Annual capacity 9.7 million tonnes • Production represented • 13% of global production • 56% of North American production • Sales $4.7 Billion • Gross margin 13.7% Source: Mosaic 2010 10K

  10. Business Segment :Phosphate • Production facilities • Central Florida and Louisiana • 2 phosphate rock mines added • 81% operating rate in 2010 • In 2010, acquired a 35% stake in a joint venture that owns phosphate rock mine in Peru

  11. Business Segments :Potash • Third largest Potash producer in the world • Annual capacity of 10.4 million • Production represented • 12 % of global production • 38 % of North American production • Net sales $2.2 Billion • Gross margin 47.6%

  12. Business segment: Potash • Production facilities • 3 mines in Saskatchewan, Canada • 2 mines in United states • Long-term capacity expansion plan in Saskatchewan • Increase capacity by more than 5 million tonnes

  13. Geographic distribution- Net sales Millions Source: Mosaic 2010 10K

  14. Geographic distribution- Net sales Phosphate 28% 29% Potash 40% 60% Source: Mosaic 2010 10K

  15. Management Discussion and Analysis • Lower cost structure • Improve through expansion in sales and production volume • Future Sales mix • 60% Potash and 40% Phosphate • High capital expenditure expectation from Phosphate expansion project

  16. Industry Introduction • Commoditized Product • Slightly product differential • Volatility • Inelastic Demand • First Stage of Industry • Reserve Supply • Economic of Scale

  17. Revenue Forecast • Volume Driver • Population Growth • Food Quality Increase • Export and Import • Soil Productivity • Price Driver • Normal Inflation • Bargaining Power • Product Yield • Oversupply or Shortage

  18. US Fertilizer Revenue Source: Datamonitor

  19. Product’s Breakdown Source: Mosaic’s Annual Report

  20. Mosaic’s Forecast

  21. Porter’s 5 Forces: Supplier Power • Medium • Suppliers provide raw materials under long-term contracts • Market players dependent on providers of energy • Suppliers are not overly dependent on customers Threat of Entry Rivalry Suppliers Buyers Threat of Substitutes

  22. Porter’s 5 Forces: Buyer Power • Medium • Large number of buyers ranging from different sizes • Products are fairly commoditized • Products are vital for buyers and have direct influence over future income Threat of Entry Rivalry Suppliers Buyers Threat of Substitutes

  23. Porter’s 5 Forces: New Entrants • Weak • Manufacturing requires scale • Capital costs are high • Lead times are long • Dominated by large players that own significant assets • Economically mineable deposits are rare for potash Threat of Entry Rivalry Suppliers Buyers Threat of Substitutes

  24. Porter’s 5 Forces: Substitutes • Weak • Organic fertilizers and GM products exist as substitutes • No substitute for potash • Organic fertilizers generally used in combination with inorganic fertilizers Threat of Entry Rivalry Suppliers Buyers Threat of Substitutes

  25. Porter’s 5 Forces: Rivalry • High • Concentrated market dominated by large players • High price competition • High fixed costs increase exit barriers Threat of Entry Rivalry Suppliers Buyers Threat of Substitutes

  26. Competitors • Potash (POT) • Largest manufacturer of potash; 3rd largest manufacturer of phosphate and nitrogen • Market cap: $52bn / 2010 Sales: $6.5bn • Agrium (AGU) • Focus on nitrogen and potash • Market cap: $15bn / 2010 Sales: $10.5bn • CF Industries (CF) • Focus on nitrogen and phosphate • Market cap: $10bn / 2010 Sales: $4.0bn

  27. Potash (POT) • Largest capacity • Largest producer of potash • 3rd largest producer of nitrogen and phosphate • Revenue diversified across North America, Asia, and South America • Revenue evenly spread across all 3 products

  28. Agrium (AGU) • Operates in 3 business segments: • Retail ($7bn sales) • Wholesale ($3.7bn sales) • Advanced Technologies ($1bn sales) • Acquired AWB in December 2010 to increase distribution capabilities for its Retail business in New Zealand and Australia • Production focus is on nitrogen and potash

  29. CF Industries (CF) • Merged with Terra Industries to gain nitrogen production capabilities in April 2010 • Second largest nitrogen producer in the world • Third largest producer of phosphate

  30. SWOT Analysis

  31. Operating Statistics • Mosaic’s margins and growth prospects are in line with its competitors while its capital position is less levered Source: Capital IQ

  32. MOS vs Competitors

  33. Current Financial Analysis Source: Capital IQ

  34. IS Trend Analysis

  35. BS Trend Analysis

  36. Performance by Segments-Sales Source: Company’s 10-K

  37. Performance by Segments-CAPEX Source: Company’s 10-K

  38. Ratio Analysis Source: Capital IQ

  39. Ratio Analysis (continued) Source: Capital IQ

  40. DuPont Analysis

  41. Forecasting Assumptions

  42. Discount Factor

  43. Discount Factor

  44. Sensitivity Analysis Terminal growth rate

  45. Negative Scenario-DCF

  46. Valuation Multiples

  47. Recommendation • The industry is very stable and the company is financially healthy, and the management’s plan for the future will also create the value for the shareholders. • However, good company is not necessarily meaning good investment. • Current market expectation of Mosaic is too far from its intrinsic value. • Based on our DCF and multiple analysis (nearly 40% overvalued), we think Mosaic’s share price is too high compared to its intrinsic value. Decision: Stop loss at $70

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