Investments houses have been quick to respond to the severe profit warning announced by Makhteshim Agan Industries Ltd. (TASE: MAIN) yesterday. The company said it expected to post a loss of $35-40 million for the fourth quarter of 2006, despite an increase in revenue to $420 million, because of a net $50-55 million in write-offs for various write-offs.
Citigroup, Deutsche Bank, Merrill Lynch and UBS all published new reviews of Makhteshim Agan in the aftermath of its profit warning, and they all remain bullish on the company and optimistic about its potential. They all support the restructuring measures by chairman and CEO Avraham Bigger, and they all predict better market conditions for the company.
Citigroup kept its “Buy” recommendation for the share at a target price of NIS 32. The banks says, “The restructuring is aimed largely at transforming the company from being an association of successful autonomous organizations to a more coherent integrated business supported by integrated back office, procurement and supply chain functions…Stripping out the exceptional charges, Makhteshim Agan’s appears set to generate net income for fourth quarter of roughly $20m - in line with our expectations.”
Citigroup says global changes in the agrochemicals market necessitate “more coordinated organization and a greater focus on efficiency.” The bank concludes, “We see recovery from 2007 and have upgraded 2008 estimates slightly to reflect our confidence in the restructuring process.”
Deutsche Bank analyst Dan Harverd kept his “Buy” recommendation for the share at a target price of NIS 28. “We had expected revenues of $405 million and net income of $13 million, so revenues were actually slightly stronger, net income excluding the one-offs will be the $5-15 million range, i.e. in line with expectations.” He concludes, “Makhteshim Agan’s announcement does not change our positive view on the stock, and we continue to expect improving fundamentals in 2007 and 2008. In fact, we draw some encouragement from the better than expected revenues and bottoming out of margins.”
Merrill Lynch analyst Haim Israel says Makhteshim Agan’s profit warning was expected. He kept his “Buy” recommendation for the share at a target price of NIS 29.50. He says, “We think fourth quarter will mark the bottom, making it one of the last quarters when fundamentals remain depressed…Our 33% gross margin remains intact,” and concludes, “As we see it, Makhteshim Agan is bottoming out and we expect stronger numbers from 2007 onward... This year is set to be one of transition and in addition to greater clarity on new management and commitment to restructuring, as demonstrated by this profit warning, we think the cycle is close to bottoming out. We spot clear signs of stability in the plant protection market, which should lead to better farming income in key countries.”
UBS analysts Joseph Wolf and David Kaplan kept their “Buy 1” recommendation for Makhteshim Agan at a target price of NIS 28 per share. It says, “Our fourth quarter model has $420.5 million in revenue and net income of $31.5 million,” and adds, “We view this announcement as a positive sign that CEO and chairman Avraham Bigger is taking initial steps towards streamlining the company to start 2007. We had expected a difficult fourth quarter, and these results are in line with our expectations. We believe that 2007 will be a more benign year for both currency and weather helping Makhteshim Agan improve on 2006 results and are encouraged by the early moves being taken by Bigger.”
Published by Globes [online], Israel business news - www.globes.co.il - on January 17, 2007
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