TSX Commentary

Potash Corporation (POT) – $115.31 – Early Signs of Potash Recovery; Increasing Target Price to $150
Outperform, Average Risk, Price Target: $150.00 (Prev. $125.00)
The potash market appears to be picking up as expected and spot pricing seems to be holding currently at ~$385-$415/tonne depending on grade/region. According to FMB this week, K+S has booked significant orders from its European customers for granular potash and Canpotex and BPC have booked additional sales to Southeast Asia. Industry sources suggest that U.S. domestic demand is improving too. Given the early signs that buyers outside of China and India are starting to return to the potash market, RBC CM has increased its target price for PotashCorp to $150 from $125. RBC CM believes PotashCorp is attractively valued based on the current implied all-in return to its target price of 30%. RBC CM’s new target price implies a 2011E EV/EBITDA multiple of 11.0x (previously 9.0x), which is in line with PotashCorp’s historical range of ~6.0x-12.0x. RBC CM stated that it is comfortable with the implied target multiple as it projects that normalized earnings in the long run will be higher than its 2011 earnings forecast. Notwithstanding this week’s unexpected increase in the USDA’s global crop production forecast for
2009/10, we believe global grain balances still remain favourable for the fertilizer sector.