Merrill Lynch reiterates its “Buy” recommendation for Israel Chemicals Ltd. (TASE: CHIM) in a new review of the company and gives a target price of NIS 39, 20% above yesterday’s close of NIS 32.59.
Merrill Lynch summarizes Israel Chemicals’ situation in three parts: “The good, the bad, and the ugly”. The investment bank says, “Fertilizer’s prices are mirroring the input cost in recent months. Now it is all about transmission ability and timing. Until now, the extra cost was rolled over to the buyers. We do not expect fertilizers prices to have a major net effect, as the input marginal costs should affect the second half more significantly. 2008 corn cash returns (at about $320/acre) are still supportive to fertilizers’ demand. Bottom-line: 2008 = higher sales + higher COGS. In this environment Israel Chemicals is handicapped, as 27% of the business (bromine) has a lukewarm performance at best.”
On the good side, “While phosphate fertilizers have taken a breather, potash prices are at an all-time high. Effective from November, Potash prices in Brazil were set at $345/ton and Southeast Asia at $350/ton (CIF). Chinese prices for 2007 are currently $130 (!) below spot, and should correct sharply. Next week Canadian potash inventories will be released, and we expect them to narrow and support pricing power from suppliers.
However, on the bad side, “The Bromine sector continues to hibernate… We believe that sector performance will remain moderate over the next 12 months.”
Finally, on the ugly side, Merrill Lynch says, “Input plus marine transportation prices = cash margins that do not incorporate the full benefits from pricing.”
Merrill Lynch predicts that Israel Chemicals will post a net profit of $478 million on $3.72 billion revenue in 2007 and a net profit of $653 million on $4.2 billion in 2008. It predicts earnings per share (EPS) of $0.37 in 2007, 37.7% more than in 2006, and even faster growth in 2008, with EPS rising 36.6% to $0.51.
Published by Globes [online], Israel business news - www.globes.co.il - on September 17, 2007
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