market folly

We're posting up notes from the Invest For Kids Chicago conference 2015.  Next up is John Burbank of Passport Capital.  He pitched a long of CF Industries (CF).


John Burbank's Invest For Kids Chicago Presentation

•    Pitching CF Industries (CF).
•    Biggest position for two years.
•    One of the few commodity equities he wanted to be long.
•    Remains bearish on commodities.
•    Located for 30 minutes from Chicago for just for another quarter, did a merger.
•    Stock traded down 30% off the deals.
•    First was a purchase of OCI. 60% of nitrogen fertilizer capacity in USA/5% global market share.
•    USA is the Saudi Arabia of Natural Gas.
•    $2 gas margins over 50%.
•    Went to $70 in early July, ended at $45 by September.
•    CF to exchange $7.4B of stock and assumed debt and cash for OCI NA and European nitrogen/methanol facilities. 2016 close data. Enables a tax inversion.
•    Over-levered copper companies which are going to zero rising 50%, yet stuff like CF dropping doesn’t make sense.
•    HSR approved yesterday and the stock dropped, not understood by the market.
•    By February should be closed.
•    CHS Co-Op – sold a minority stake at a premium. CHS canceled a 3.1BB nitrogen plant. Instead will invest 2.8B in CF for 9% of CF’s pre OCI deal production.
•    Deal values CF equity at ~$107.
•    Combined market cap of $17B. 3-5B of EBITDA post deal.
•    Cash flow from ops after mcapex of $1.8 to 3.2B.
•    Product capacity of 25.1MM short tons.
•    Will use FCF to return to shareholders.
•    Take five years to build capacity so nothing to do with money.
•    CF is not a mining company.
•    Short Mosaic (MOS), Potash (POT), Agrium (AGU), K&S as a hedge. Negative on markets and commodities.
•    Also is long USD.
•    CF is 8th best performing stock over the past ten years behind apple.
•    EPS 5.5-6 dependent upon corn yields.
•    Street doesn’t understand this industry or the OCI deal.
•    Passport has an analyst with a Dow/GE background tracking this. Good edge.
•    CF has returned 11% of its market cap annually to shareholders, bouht back 35% of company since FY12. 2.3% div yield. Will probably buy abck more stock.
•    Sold phosphate biz (not great) to Mosaic.
•    Executives are buyers.
•    Will return $12Bn to shareholders over next four years. Mcap is 17B.
•    Can’t buyback stock now until deal closes.
•    Buybacks based upon flat prices.
•    Thinks commodity prices going down, USA might go into something that feels like a recession. Shouldn’t own most stocks. Want something confident in liquidity and management.
•    Trade long CF / short 2/3 MOS and 1/3 POT as a pair.


Check out the rest of the presentations from Invest For Kids Chicago 2015.