Deutsche Bank is bullish on Israel Chemicals Ltd. (TASE: CHIM) in the wake of two new contracts in South Africa at substantially higher prices than previous contracts. The investment bank says, “We are somewhat bemused that during this period of dramatic price increases Israel Chemicals’ share price has been treading water, and view it as an excellent buying opportunity. This is especially the case since there is visibility into further prices increases in 2008 now that China lags global prices.”
The bank gives the company a “Buy” recommendation with a target price of NIS 42, a 20% premium on its present price. The bank adds that the share is traded at a 15% discount compared with its peers.
Deutsche Bank says, “Israel Chemicals has booked two new contracts in South Africa at cost, insurance, and freight (CIF) prices of $285 and $300 per ton for delivery in the third quarter. This is much higher than previous deals which were below the $250 level. The new threshold in the industry has been set in Southeast Asia and Brazil in recent weeks where the $300/ton level has been crossed for fourth quarter shipments. Even in Europe, where price increases tend to be more moderate, there has been a 20% hike to the $250/ton level.
“Just to put the recent price rises into perspective, Israel Chemicals realized cif price/ton was $210 in 1Q07. For 2007 as a whole we forecast an average price of $240/ton, with most of the price increases in the second half. We have modeled $260/ton for 2008, which would appear conservative given current prices and the recently announced $270/ton 1.1 million contract in India. Despite this our 2008 earnings estimates are about 15% above consensus. There have been investor concerns recently that higher transportation costs will offset the potash price rises. Indeed the BDI shipping index is up by more than 100% year-on-year, however Israel Chemicals’ shipping costs are not linked directly to the BDI. Industry data suggests that shipping costs have increased by $10-20 per ton, well below the circa $60/ton global potash price increase so far this year. If anything, higher transportation costs could provide potash suppliers with an 'excuse' to raise CIF prices further.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 19, 2007
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