Middle Coast Investing on CF Industries Holdings, Inc.
Thesis
CF Industries benefits from low-cost natural gas as it makes nitrogen fertilizers and ammonia. Disruptions around the Strait of Hormuz are constraining industry supply and create upside for CF as well as a hedge for the broader portfolio. The manager purchased around $120 per share at approximately seven times target mid-cycle EBITDA and aims to build a starter position closer to $110 on average.
“I felt the insurance for our portfolio against continued Hormuz hold-ups was worth paying for now.”
Key risks
- Hormuz reopening may lower fertilizer prices
- Geopolitical supply scarcity may be temporary
- Execution and funding of a pending expansion project