Analysts are split over Israel Chemicals Ltd. (TASE: ICL). While Merrill Lynch has upped its target price for the share by 8.3%, IBI Investment House predicts a weak year for the company.
Israel Chemicals share fell 0.5% by midday on the TASE today to NIS 32.63.
IBI analyst Yuval Zehira reiterated his "Neutral" recommendation for Israel Chemicals and NIS 29 target price. He notes that markets are at a standstill, and predicts that the company's potash sales will fall to a low of 450,000 tonnes in the first quarter, a third of its normal output.
Zehira adds, "The market is now waiting for clarity on the direction of fertilizer and commodity prices, and the effects of the economic crisis. Most of the fertilizers in use today come from the massive stock accumulated by distributors during 2008. Those sales that are going ahead are on the basis of old and longer-term contracts, such as the one with India, which came into effect in April 2008."
Zehira has again lowered his 2009 forecasts for Israel Chemicals. He predicts that potash sales will drop to 3.5 million tonnes, at $400 per tonne, from five million tonnes in 2008. He also predicts that phosphate fertilizer prices will plummet, and that price for the company's industrial and performance products will also drop. However, these falls will be offset by lower transport, raw materials, and production costs.
Zehira cut his forecast for Israel Chemicals' 2009 net profit to $1.09 billion from $1.44 billion. The 2009 estimate is half his estimated 2008 net profit of $2.2 billion. He predicts that revenue will fall to $4.88 billion in 2008 from $7.2 billion in 2008, and not much higher than the $4.1 billion revenue in 2007.
Merrill Lynch analyst Haim Israel reiterated his "Buy" recommendation for Israel Chemicals and raised its target price for the share from NIS 36 to NIS 39, a 21% premium on today's opening price.
Haim Israel takes a long-term view of Israel Chemicals and its business. "We believe investors should look beyond the soft patch in the potash market over the next two quarters, as we believe that agrochem fundamentals are bottoming out." He adds that the market is playing it too safe and discounting more than it should.
In the short term, however, he says that sales in the fourth quarter and first quarter will be light, with first quarter phosphate and potash volumes less than half the levels of the preceding quarter. He predicts that things will pick up in the second half of the year. He cites three reasons: production cuts were more disciplined and effective than expected; use of fertilizers is returning to normal; and the cost curve is plummeting.
Haim Israel predicts that Israel Chemicals will report a net profit of $2.09 billion on $6.87 billion sales in 2008, and a net profit of $1.43 billion on $6.01 billion revenue in 2009.
Haim Israel notes, "As a cyclical company, we understand that Israel Chemicals will not be immune to a softening business environment; however, lower fertilizer usage in 2009 should lead to a spike in demand in 2010. As a low-cost producer, we believe Israel Chemicals will easily be able to ride out the coming year."
He adds that the share has rebounded almost 78% from its December low point, and that the current share price already factors in all the negatives, which puts the share below its peers and below its five-year average. The company is also the most "cash-rich fertilizer name in our universe".
Published by Globes [online], Israel business news - www.globes-online.com - on February 17, 2009
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