Clal Finance ups Israel Chemicals recommendation
Clal Finance raised its recommendation t to "Outperform" with a target price of NIS 48, a 15% premium on today's opening price.
Kreizman says, "We seen this too many times in the past few years to ignore it: damage from summer heat has become routine, especially in the US, increasing the likelihood of a rally in grains prices, headed by corn and wheat, which have already jumped 11% within a week. We believe that continuation of this surge will help Israel Chemicals and other potash producers to maintain or raise prices from their current level. At the new equilibrium, spot prices could reach $500 a ton."
Kreizman adds that Israel Chemicals is in a better position than its peers. "Despite the potash market stagnation in 2012, high prices enable Israel Chemicals to maintain its profit margins while presenting single-digit growth in the coming years.
As for the TASE, Kreizman says, "Considering the challenging business environment, compared with alternative sectors on the TASE, a tail wind from commodities and Israel Chemicals' ability to distribute 70% of its profit as a dividend (a yield of 8%), makes the company a worthwhile holding."
Kreizman adds three caveats: the estimated crops damage may be premature, which will stop the rise in grain prices, and contribute to volatility; the lack of growth in the potash market in 2013 will make it difficult for Israel Chemicals to achieve profit margin growth; a longer-than-expected delay in new potash contracts with China and India.
Israel Chemicals' share price rose 0.1% by early afternoon to NIS 41.84, giving a market cap of NIS 52 billion.
Published by Globes [online], Israel business news - www.globes-online.com - on June 28, 2012
© Copyright of Globes Publisher Itonut (1983) Ltd. 2012
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