Anticipating a Recovery in H2-2024

Potash prices (Brazil) are down 28% YoY, and 11% QoQ, to $305/t vs the five-year average of US$360/t. We are cautiously optimistic , and anticipate a recovery in demand in 2024, as fertilizer prices have begun stabilizing. Since August 2023, the Central Bank of Brazil has implemented six consecutive interest rate cuts, which should stimulate increased spending by farmers. We anticipate a 40% YoY increase in product sales in 2024 , which is conservative as management is estimating a 75% increase. We believe the company will start reporting revenue from the sale of carbon credits this year. Management is in discussions with various parties. V erde&rsquo;s products can potentially extract 75-125 kg of carbon dioxide through Enhanced Rock Weathering (ERW). ERW involves artificially accelerating the natural weathering of rocks to remove and sequester carbon dioxide from the atmosphere. Verde&rsquo;s existing facilities can generate up to 300 Kt of carbon credits annually, implying US$15M in potential revenue, assuming a conservative estimate of US$50/tonne CO2. As potash prices in Q1-2024 were weaker than expected, we are lowering our 2024 revenue and EPS forecasts. NPK is down 59% YoY, and trading close to its 52-week low. However, w e anticipate a positive shift in sentiment for the stock as product sales accelerate in H2-2024.

Key Financial Data (FYE - Dec 31) (C$ '000) 2023 2024E 2025E Cash <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:6975}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$6,975 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:1523}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$1,523 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:860}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$860 Working Capital <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-16868}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">-$16,868 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-20895}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">-$20,895 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-19941}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">-$19,941 LT Debt <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:10521}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$10,521 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:10521}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$10,521 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:10521}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$10,521 Total Assets <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:96172}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$96,172 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:93675}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$93,675 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:96007}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$96,007 Revenue <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:37863}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$37,863 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:44550}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$44,550 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:60750}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$60,750 Net Income (Loss) <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-5979}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">-$5,979 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-3619}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">-$3,619 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:1098}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0&quot;,&quot;3&quot;:1}">$1,098 EPS <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; background-color: #ffffff; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-0.11}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0.00&quot;,&quot;3&quot;:1}">-$0.11 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; background-color: #ffffff; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:-0.07}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0.00&quot;,&quot;3&quot;:1}">-$0.07 <td style="border-width: 1px; border-style: solid; border-color: #cccccc #000000 #000000 #cccccc; border-image: initial; overflow: hidden; padding: 2px 3px; vertical-align: top; background-color: #ffffff; font-family: Manrope; font-weight: normal; text-align: right; height: 18.6719px;" data-sheets-value="{&quot;1&quot;:3,&quot;3&quot;:0.02}" data-sheets-numberformat="{&quot;1&quot;:4,&quot;2&quot;:&quot;\&quot;$\&quot;#,##0.00&quot;,&quot;3&quot;:1}">$0.02

**See important disclosures at the bottom of this report, rating and risk definitions. All figures in C$ unless otherwise specified.

NPK vs Major Fertilizer Producers

Source: FRC / S&amp;P Capital IQ

NPK has higher gross margins, and debt/capital

We anticipate NPK&rsquo;s revenue will increase 18% YoY this year vs an average decline of 8% among the majors listed in this table (Source: S&amp;P Capital IQ

Operating Performance and Financials

2023 revenue was down 53% YoY, and 12% lower than our forecast, due to lower product sales and prices

Source: FRC / Company

Product sales were down 32% to 428 Kt vs our forecast of 450 kt

Gross margins declined 13 pp to 65% vs our forecast of 72%, due to lower product prices

Operating profit/tonne declined 88% YoY to $5/t

Source: FRC / Company / S&amp;P Capital IQ

As a result, EPS deteriorated from $0.34 to -$0.11 vs our forecast of -$0.09

Source: FRC / Company / S&amp;P Capital IQ

Funds from operations declined as well

Debt to capital remains higher than the sector average

$19M in debt is due for repayment this year; we believe management has to either refinance this debt, or raise equity

FRC Projections We are maintaining our product sales forecasts, but lowering our revenue and EPS forecasts due to lower product prices

As shown in the table, our estimates are conservative, and lower than management&rsquo;s guidance

Source: FRC

We are not making any material changes to our long-term forecasts

Our DCF valuation decreased from $8.26 to $6.71/share, due to our lower EBITDA forecasts

We are continuing to refrain from using a comparables valuation model as we have yet to identify junior producers with comparable growth potential

We are reiterating our BUY rating, and adjusting our fair value estimate from $8.26 to $6.71/share . As fertilizer prices have started stabilizing, we anticipate a recovery in potash demand in 2024. Key catalysts for the stock include positive developments regarding carbon credit sales, and anticipated revenue growth in H2-2024.

Risks Maintaining our risk rating of 4 (Speculative)

The value of the company is dependent on fertilizer prices Geopolitical and FOREX No guarantee that the company&rsquo;s brands will gain mass adoption Global fertilizer demand Leveraged balance sheet; although NPK did not meet certain financial covenants at the end of December 2023, its lender granted a waiver, exempting it from immediate or premature repayment. Permitting and development

APPENDIX

Metrics	Value
Current Price	CAD $1.07
Fair Value	CAD $6.71
Risk	4
Week Range	CAD $1.03-4.17
Shares O/S (M)	53
Market Cap. (M)	CAD $56
Current Yield (%)	N/A
P/E (forward)	N/A
P/B	1.2

Metrics	Value
Current Price	CAD $1.07
Fair Value	CAD $6.71
Risk	4
Week Range	CAD $1.03-4.17
Shares O/S (M)	53
Market Cap. (M)	CAD $56
Current Yield (%)	N/A
P/E (forward)	N/A
P/B	1.2

Verde AgriTech Ltd

Anticipating a Recovery in H2-2024

Highlights