Merrill Lynch gives Israel Chemicals Ltd. (TASE: CHIM) a "Buy" recommendation on the strength of the company's "excellent" third quarter financial results and says that there "is more to come". The investment bank sets a target of NIS 48, compared with yesterday's close of NIS 41.65.
In a three-part summary, entitled sequentially, "The good", "the bad", and "the beautiful" Merrill Lynch notes, "Israel Chemicals' third quarter numbers were strong, boosted by a very positive cash margin contribution from the fertilizer segment." There is a fly in the ointment, however. "Israel Chemicals cost structure has become the main drag on its financial performance." The bank notes that third quarter shipping costs were 26% more than for the corresponding quarter.
Despite the rising costs, Merrill Lynch says that with a fertilizer supply curve that is even tighter than originally forecast, and Chinese and Indian contracts just around the corner, potash and fertilizer prices will continue to rise. The bank says that its potash price forecast of $300 per ton will probably prove too conservative. The bank predicts a 22% upside to its 2008-09 forecast of Israel Chemicals earnings before interest, taxes, depreciation and amortization (EBITDA), assuming a ‘clear-blue-sky’ scenario.
Published by Globes [online], Israel business news - www.globes-online.com - on November 20, 2007
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