Volatility is a constant companion for K+S shareholders. The German mid cap shows an enormous range of price fluctuations: Starting from the beginning of January, Thomson Reuters puts the historical volatility of K+S at 50%. By way of comparison, for the MDAX, of which the share is one of the 60 members, this figure amounts to about 13%. The relatively strong price fluctuations are quite typical for the sector in which the traditional group is active. K+S is a classic commodity stock. The company's main product is the extraction of potassium and magnesium fertilizers in its mines. Accordingly, just under two thirds of revenues come from agriculture. In the second customer segment, the Hessians supply industry, private households and local authorities with various salts - whether for water softening, as a component of injection solutions or for winter road clearance services for de-icing traffic routes.
Two factors that are decisive for the success of the company stand out from this broad base. In addition to prices for agricultural raw materials, these are winter weather conditions. In 2020, both parameters made life difficult for K+S. In both Europe and North America, "Father Frost" was very restrained, which is why relatively little de-icing salt was needed. At the same time, the Corona pandemic intensified the downward trend in grain and potash prices. Consequently, K+S posted a significant decline in revenues and earnings for last year (see chart). The tide has now turned. With the rally on the commodity markets - corn has risen in price by just under 70% within 12 months - fertilizer prices have turned upwards. In addition, winter bared its cold teeth again at the beginning of 2021, especially in Europe.
A look at the quarterly report shows that this mixture of factors is having an impact on K+S's business. From January to March 2021, the group increased revenues by 13% to EUR 733 million. Earnings before interest, taxes, depreciation and amortisation (EBITDA) showed disproportionate growth of 27% to EUR 126 million. "From today's perspective, we are also optimistic for the rest of the year and are therefore raising our forecast," commented CEO Burkhard Lohr on the latest results. He now expects EBITDA of between EUR 500 million and EUR 600 million for 2021, compared with a previous range of EUR 440 million to EUR 540 million. By comparison, K+S earned EUR 267 million operationally in 2020. All figures refer to continuing operations. This note is important in that the MDAX company was able to announce the completion of the sale of the Americas salt business at the end of April.
In addition to activities in Chile, mining sites in the USA as well as Canada are going to Stone Canyon Industries Holdings. At the end of 2019, K+S had put the assets acquired on the American continent after the turn of the millennium up for disposal. "With the proceeds from the sale of 2.6 billion US dollars, we are taking a huge step towards reducing debt," the CEO was pleased to say. Indeed, the group could do with some relief here. Last year, net debt had risen to more than seven times EBITDA. Burkhard Lohr has already taken his announcement seriously. At the end of June, the CEO was able to reduce financial liabilities by EUR 560 million by buying back bonds. The latest news from the company's headquarters in Kassel has been well received on the stock market: since the turn of the year, capitalization has increased by half.
This means that K+S has outperformed the MDAX by more than 40 percentage points. However, as already mentioned at the beginning, the share also stands out clearly from the crowd in terms of volatility. This is precisely why barrier reverse convertibles offer themselves as an investment alternative. This is because the implied price volatility literally acts like fertilizer on the terms of this structured product. The higher the volatility, the higher the coupons and/or the lower the barriers. Of course, relatively high volatility increases the risk of threshold breaches. Leonteq has launched two new Softcallable Barrier Reverse Convertibles on K+S. Investors can allocate the capital either in CHF or EUR. While the CHF version offers a coupon of 13.00% p.a., the EUR alternative pays out 40 basis points higher. The barriers are uniformly set at 59% of the initial level. For the first time after half a year and from then on every three months, early termination and redemption of this issue is possible, the keyword being "soft callable".
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