John Burbank Long CF Industries: Invest For Kids Chicago Presentation

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.