A German view: Fertiliser group puts on growth

published 12 December 2005

There aren't many German stocks that have more than trebled in the past two years.

But despite its impressive run-up, Europe's second-biggest fertiliser group, Kali + Salz (SDF, e55), offers plenty of scope for further gains, says Udo Rettberg in Handelsblatt.

Kali + Salz, which produces industrial and household salt as well as potash and magnesium-based fertilisers, has exceeded expectations with a 47% jump in operating earnings to e39m for the third quarter on a 16% jump in turnover.

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Strong demand for fertilisers amid tight global supplies allowed the group to push through price increases, and the positive market backdrop should endure over the long term. A rising global population and mounting demand for higher-quality food in developing countries, notably China, presages a growing need for fertilisers to boost the output of scarce arable land.

Kali + Salz is contemplating acquisitions to boost profits further, with the takeover of a Chilean salt mine on the cards as well as a possible joint venture with a Russian potash producer.

West LB is one of many banks deeming the stock (repeatedly highlighted by MoneyWeek over the past two years) a buy; its target price of $65 implies upside of 18%. Dresdner Kleinwort Wasserstein and DZ Bank expect similar gains over the next 12 months.The stock is currently on a 2006 p/e of 14.