Credit Suisse has raised its recommendation for Israel Chemicals Ltd. (TASE: ICL) to "Outperform" from "Neutral" but cut its target price to NIS 57.80 from NIS 62.90, because of the possible impact on the company's results if has to pay for the salt harvesting to restore the Dead Sea.
Credit Suisse says, "We believe the stock represents attractive value after recent weakness discounting worst case scenario of the tax burden. On September 4, Deputy Attorney General for Economics and Fiscal Affairs of Israel Avi Licht suggested to the Ministry of Finance that Israel Chemicals should: bear the largest portion of the Dead Sea clean-up costs and consider imposing excess-profit tax."
Credit Suisse revised its valuation of the company to reflect a possible tax hike on Dead Sea Works' potash operations to 50% from 19%, which could cut Israel Chemical's profit by $4.1 billion (NIS 11.60 per share), and increase its pre-tax expenses by $50 million beginning in 2012 to pay for permanent solution of the southern basin of the Dead Sea.
Credit Suisse says that these losses will be offset by stronger performance by the company's industrial and specialty chemicals segments.
Credit Suisse predicts that Israel Chemicals will report a net profit of $1.76 billion on $7.64 billion revenue in 2011, rising to a net profit of $1.92 billion on $8.04 billion revenue in 2012, and falling back to a net profit of $1.73 billion on $7.98 billion revenue in 2013.
Israel Chemicals' share price rose 2.5% by midday today to NIS 44.08, giving a market cap of NIS 55 billion, after falling over 13% in the two previous days following the publication of Licht's proposals.
Published by Globes [online], Israel business news - www.globes-online.com - on September 7, 2011
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