Citi has raised its recommendation for Israel Chemicals Ltd. (TASE: ICL) to "Buy" though it reiterated its target price of NIS 52. Citi says that a major reason the share has fallen farther than its peers in the potash market so far this year is selling pressure by emerging market funds ahead of Israel's reclassification to MSCI developed market status on May 26. This technical overhang should diminish after next week, and make way for new investors from developed market funds.
Citi also expects Israel Chemicals to publish good results for the first quarter. It expects a strong increase in demand for potash, which accounts for 70% of the company's profits, especially from India. Citi also sees a sharp increase in revenue from industrial products, which account for 10% total profits, as demand for brominated flame retardants recovers.
Although Citi is still cautious about the potash industry, it believes that Israel Chemicals is well positioned in it. "We expect volumes to recover back to normal (we are seeing clear evidence of this in 2010) but believe plentiful supply will prevent a price recovery. We forecast prices staying at around current levels of $400 per ton. In this environment ICL is well placed. Its Dead Sea facilities are amongst the lowest cost, it has expansion potential at low capital expenses cost and its geographical proximity to India, Europe, Brazil and even China allows beneath average freight costs."
Finally, Citi believes that Israel Chemicals will likely increase its dividend payments, in view of it robust balance sheet and strong cash flow.
Israel Chemicals' share price fell 1.4% at the opening on the TASE today, in line with the general market slide.
Published by Globes [online], Israel business news - www.globes-online.com - on May 20, 2010
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