HSBC has raised its price target for Israel Chemicals (TASE: CHIM) from NIS 61.50 to NIS 66.00. The move follows the signing of an agreement between India and suppliers in Russia for supply of potash in the May 2008 to March 2009 period at $625 per tonne, compared with $270 per tonne under the previous agreement. Israel Chemicals shares are currently at NIS 49.96 on the Tel Aviv Stock Exchange, up 2.15% so far this session.
"India agreed last Thursday to purchase potash from FSU suppliers at $625/tonne (delivered), up from $270/t in 2007. The deal covers the May 08-March 09 period, and we expect that, as in years past, Israel Chemicals will benefit from the same price. This news increases our 2008 and 2009 ICL potash price estimates from $440 and $520 per tonne to $460 and $550 per tonne. We think this result reinforces the sustainability of global current potash pricing levels - currently in the range of $500-600/tn and more importantly, pressures China in its ongoing negotiations with the same FSU suppliers. China is now paying c$270 per tonne delivered; we think that fears of a low 2008 price increase are now overblown in light of the Indian agreement," HSBC analyst Yonah Weisz writes.
Weisz also takes into consideration the gas supply deal Israel Chemicals has signed with Yam Tethys and probable exchange rate movements.
"ICL yesterday agreed to purchase 2 billion cubic meters of natural gas from the Yam Tethys reserve off Israel’s southern coast. Supply will begin as the gas line to ICL’s Dead Sea site is completed around the end of 2008. The company estimates that this will lead to $100 million in efficiency and energy savings, c1.5% improvement to our 2009 gross margin estimate. Lower costs can also be expected due to exchange rate movements, as declining interest rates and the Bank of Israel’s foreign currency buying programme have begun to weaken the shekel, reducing the US dollar value of ICL’s domestic shekel expenses.
"We are raising our price target from NIS 61.50 to NIS 66.00, and maintain our Overweight rating, implying a return of 36.1% from current price levels. ICL’s share price is down 1% year to date, and we believe that the points mentioned above combined with the current share price offer an attractive entry point for owning ICL shares. We suggest buying ahead of 2007 results to be reported on 30 March 2008."
Published by Globes [online], Israel business news - www.globes.co.il - on March 27, 2008
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