Analysts have weighed in the financials of Israel Chemicals Ltd. (TASE: ICL), published yesterday, and the consensus is favorable. UBS, Citi, Merrill Lynch, and Psagot Investment House Ltd. all give the share a "Buy" recommendation, with the only difference being the target price. The share nevertheless fell 0.2% today to close at NIS 49.30.
Psagot analyst Limor Gruber raised her target price for Israel Chemicals by NIS 9 to NIS 63, a premium of 24.8% on today's opening price. She says, "The results underscores the strength of the fertilizer industry," adding that potash prices were likely to continue to rise even more strongly this year. She also noted that prices rises for phosphates were offset by higher prices for its raw materials - sulfur and phosphate rock. Israel Chemicals buys sulfur, which will offset a large part of the company's profits.
Merrill Lynch analyst Haim Israel says that Israel Chemicals had a "record year, till the next one", and the excellent numbers were in line with forecasts. He set a target price of NIS 60. He notes, "The company's fourth quarter revenue of $1.21 billion (compared with Merrill Lynch's estimate of $1.1 billion), which represent a 44% jump year-on-year (36% year-on-year excluding for the first-time consolidated of recently acquired Supresta). earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $274 million (22% year-on-year), slightly shy of our estimates, primarily due to an $8 million inventory adjustment at the industrial division. Net income jumped $165 million year-on-year, inline with our estimates."
Haim Israel added, "Israel Chemicals announced it will increase phosphate rock capacity for external sales by 500 kilogram per ton in 2008; increase total production by 1.1 million tons by 2010. TSP 250 year-on-year by 2011. potash: 500 year-on-year till 2010 (half in 2009). According to the current spot prices, this is an addition of $250 million to 2008 sales ($65 million EBITDA) and $400 million in sales for 2009 ($130 million EBITDA)." He concludes that 2007 is "just the beginning" and predicts that capacity enhancements will result in $250 million in incremental sales and a $65 million EBITDA in 2008; new contracts in India will result in $350 million in incremental sales and a $150 million EBITDA in 2008; and a natural gas supply contract will result in $90 million in incremental EBITDA in 2008.
Citi gives Israel Chemicals a target price of NIS 62, and notes that the company's adjusted earnings per share of $0.14 beat consensus of $0.12 and Citi's forecast of $0.08. "The key driver of the upside was higher-than-expected potash sales volumes (1.43 million tons versus our 1.25 million tons) and realized price ($310 per ton versus our estimate of $298 per ton). Year-end potash inventory stands at 1.3 million tons, higher than the 1.05 million tons we forecast. We expect about 700,000 tons to be sold in 2008-09."
UBS also gives Israel Chemicals a target price of NIS 62. The investment bank notes that the company's fourth quarter revenue beat its forecast by 9% because of strong fertilizer prices. Net profit was 8% above forecast mainly due to lower than expected tax rate. "Given the dramatic changes in potash and phosphates prices, we believe the fourth quarter results show only the 'tip of the iceberg', as the big numbers should get into play during 2008." Although UBS says that it is "wary of cost pressures, we expect the positive dynamics in the potash and phosphate markets to set the tone in the coming years."
Published by Globes [online], Israel business news - www.globes-online.com - on March 31, 2008
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