Merrill Lynch and Citi have remained upbeat about the prospects for agrochemicals company MA Industries (Makhteshim Agan) (TASE: MAIN), following the unveiling of its results, but would apparently like to see better market fundamentals before they give the company a more ringing endorsement.
"Makhteshim Agan's fourth quarter numbers came inline with our expectations and within the guidelines of the company’s profit warning from January 10," notes Merrill Lynch analyst Haim Israel. The company announced both a $100 million share buy-back program and announced a $120 million dividend, which translates to 3% dividend yield."
Israel, who reiterates his "Neutral" rating for the company, believes Makhteshim will see higher sales and prices in 2008, but is undecided about its margins this year. "We remain bullish on market fundamentals," he continues. "The US Department of Agriculture's World Agricultural Supply and Demand Estimates report from March 11 proves once again that industry dynamics are very favorable. Soy stock-to-use is at 4.6%, its second lowest level in 43 years. Corn ratio is currently standing at 12% (a 34-year low) and wheat at a 60-year low.
"However, projections for corn production jumped by 77% (by 3.9 million tons, out of which 76% of the increase stems from Brazil), while maintaining soy production levels. However, we believe that the industry has not seen the last of the raw material pricing shock. Likewise, global foreign exchange trends (euro appreciation will help to moderate operational costs coming from a strong shekel) will continue to burden results, and put a question mark on Makhteshim's ability to pass on the extra costs to the end clients."
Citi sounds a slightly more positive note in its review, in which it rates Makhteshim "Buy." Citi analyst Andrew Benson notes, "Market conditions are strong and Makhteshim is gaining share. However, it is having problems managing margins. This is a function of the type of growth - biased to Brazil and herbicides, which have below average margins, but also because of the pace and scale of raw material/ energy increases (mainly Euro-zone sourced and related to the oil price). "
Benson is confident that Makhteshim has made a strong start to 2008." Noises from the industry suggest a very strong start to the year. Pre-buying, a heightened focus on yield expansion, and the likelihood that prices will increase in 2008 should ensure strong earnings per share growth," he adds.
Published by Globes [online], Israel business news - www.globes-online.com - on March 12, 2008
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