Stock pick: A new CEO signals new possibilities for Potash Corp. (POT)

Tilk could reinvigorate the company


Chart showing trailing 12-month stock performance of Potash Corp.

When Potash Corporation of Saskatchewan’s (TSX: POT) board learned in 2011 that William Doyle, its long-time CEO and president, wanted to step down when he turned 65, it began a rigorous three-year search for a successor. The hunt officially ended on April 6, when it was announced that Jochen Tilk, former president and CEO of Toronto gold producer Inmet Mining, would take over on July 1.

A CEO change at a company is often a source of stress for investors. There’s always some uncertainty as to where the new guy will take the business and if there’s one thing investors don’t like it’s uncertainly.

One reason why some people may be worried is that Tilk has never worked in the potash industry, but analysts point out it’s not like he’s a new face in the commodity sector. He does have 30 years of experience in the base metals business.

Still, Steven Hansen, an analyst with Raymond James, is “cautiously optimistic” about the new hire. While he thinks Tilk will bring a fresh perspective to the company, he does question the timing of the move, especially considering Doyle doesn’t turn 65 until next year.

When Tilk takes over, it will be a year after one of the main potash marketing cartels went bust. Thanks to that and falling demand for the commodity, prices have dropped by about 20% over the last 12 months. “It’s not hard to be a little taken aback, that such a monumental ‘changing of the guard’ will unfold on the heels of one of the potash industry’s most volatile periods,” he wrote in April 7 report.

However, he does think that an outsider could invigorate the company and its investors and points out that many people were “growing tired” of the previous leadership. Doyle is remaining at Potash Corp. as an advisor for a year, which should make for a smooth transition too. Because of this, Hansen isn’t worried about shareholders taking a hit. “(This leads) us to believe that investors shouldn’t expect too much change over the short to mid-term,” he writes.

Hansen maintained his buy rating on the company and has a 12-month price target of US$36. He also points out that company is trading at a 16 times 2015 price-to-earnings multiples, which is near the mid-point of the stock’s five year historical trading range. Other analysts think the stock could climb as high as $42 over the next year.

Only time will tell whether Tilk is the right guy to lead Potash into the future, but, at least for now, investors have no need to panic.

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