Deutsche Bank includes three Israeli companies in its latest “emerging market top picks” review, entitled “Turbulent markets, equity opportunities”. “Where there are risks, so there are opportunities. For this report (there are actually four reports in total: Asia; Emerging Markets; Europe; & North America), we asked our 408 company analysts to identify their highest conviction single stock ideas. In further discussions with them, we did our best to screen out those ideas that were most likely to be subject to overall market direction.”
The bank’s three Israeli top picks are Israel Chemicals Ltd. (TASE: CHIM), Israel Discount Bank (TASE: DSCT), and AFI Development plc (LSE:AFID), all of which receive a “Buy” recommendation.
Deutsche Bank gives Discount Bank a target price of NIS 10.80, 29% above September 11’s closing of NIS 8.35. The bank says that its rating for the bank “is based on the bank’s strategic plan announced earlier this year, which we view as realistic, and see return on equity improving to 13% by 2010 from 9.1% in 2006. The implied 20% earnings growth to 2010 estimate is not fully priced into the stock in our view. Strong second quarter results highlight positive effects of the strategy.
“The main targets of Discount’s strategic plan for 2007-11 are double-digit annual growth in net operating income, return on equity of at least 13% as from 2010 (based on beginning of year equity), and consistent improvement in operating indices.”
Deutsche Bank specifically mentions Discount Bank’s full takeover of Discount Mortgage Bank and the increase of its holding in Israel Credit Cards-Cal Ltd. (ICC-Cal) (Visa) to 72%. “ICC has announced that it is considering an offer of shares to the public, which may expose some hidden value at Discount.”
Deutsche Bank says that its rating for Israel Chemicals “is based on expected strong demand for potash and phosphate, and rising prices; average potash prices are up 29% year-to-date. We view the market as driven by secular trends in the agricultural supply chain, and expect the stock to perform well as price increases begin to impact in the second half. The company is well positioned to utilize excess inventory as global supply tightens.” The bank gives the company a target price of NIS 42, 34% above its closing of NIS 32.40 on September 11.
In the longer term, the bank says, “Israel Chemicals’ recent acquisition of flame retardant (FR) company Supresta is expected to be accretive by 2009. We view the acquisition as a good use of cash, and expect it to balance the company’s portfolio from both a product and a geographic perspective.”
Africa-Israel Investments Ltd. (TASE:AFIL; Pink Sheets:AFIVY.PK) owns 71% of its Russian property development arm AFI Development. Deutsche Bank gives the share a target price of $13.60, 52% above September 12 close of $8.95. The bank says, “We believe that the market overreacted to the negative sentiment created by the expensive pricing of the IPO… Our price target suggests a 45% total return potential from current price levels and we therefore advise investors to take a constructive view on AFI Development.” The bank adds that AFI Development is “the largest Russian real estate investor with an estimated rental income of $900 million in 2011.” It has a pipeline of 4.7 million square meters of gross building area (GBA). The company has an upside potential in all real estate segments due to structural undersupply that is is a legacy of the Soviet era. In 2005, the total stock of Class A and B office space in Moscow (the most developed market in Russia) stood at just 452 sq.m. per 1,000 people, compared with the European average of 5,992 sq.m.
Published by Globes [online], Israel business news - www.globes.co.il - on September 17, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007