UBS has raised its target price for Israel Chemicals Ltd. (TASE: ICL) to NIS 85 from NIS 67. The share traded at NIS 65.80 at the time of the report. UBS reiterated its "Buy" recommendation.
UBS analysts Darren Shaw and Roni Biron cite the rise in the spot price for potash to $1,000 per ton in new JSC Belarusian Potash Company (BPC) contracts in Brazil and Asia, effective on July 1. The spot price for potash has risen from a range of $400-410 per ton at the beginning of the year.
UBS notes, "Israel Chemicals sells about 1.1 million tons of potash to Brazil (over 20% of sales), implying additional revenues of over $300 per ton a year. We note that over 90% of this addition should sink to the bottom-line. Furthermore, this steep hike highlights the very tight conditions in the market and paves the way to substantial price increases in other markets."
UBS raised its revenue forecasts for Israel Chemicals by 6% to $7.13 billion for 2008 and 21% to $9.56 billion for 2009. It is also raising earnings per share forecasts by 24% to $1.50 for 2008 and by 69% to $2.73 for 2009. UBS added that these are cautious forecasts, based on spot rates in Brazil and Asia, while Israel Chemicals' realized price is lower due to its geographical mix.
UBS adds, "While market conditions remain conducive to further hikes in the coming two years, we assume conservative mid-term prices and lower long-term prices to reflect additional capacity following 2010, as well as the risk of softening demand."
UBS cautions, "The major risk to Israel Chemicals include softening of the agriculture commodity market, rising cost pressures, appreciation of the shekel, lower than expected fertilizer prices, and soft demand for brominated electronic components."
Published by Globes [online], Israel business news - www.globes-online.com - on April 24, 2008
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