Merrill Lynch and Citigroup have reiterated their “Buy” recommendation for Makhteshim Agan Industries Ltd. (TASE: MAIN) after the company published its financial report for the second quarter of 2007.
Merrill Lynch also reiterated its NIS 36 target price for the company. It notes, “The key message from Makhteshim Agan’s second quarter numbers is the improvement in working capital and higher free cash flow. This had been our key concern, especially when the recent selling prices/input cost ratio was unsupportive to Brazilian farmers, overshadowing credit collection by the company.”
Looking ahead, Merrill Lynch says, “The main indicator for the third quarter is the cash margins for corn producers which are $340/acre, $100/acre higher than for soy. In our most recent report on Makhteshim Agan, we noted that the strong cash margins ease our concerns that with the fall in output prices and the jump in agri-inputs, collection will be on the line. However, second quarter numbers, including the increase in cash margins on corn vs. soy to an all-time high, reassure us that this trend will continue and that Makhteshim Agan is on the right track.”
Merrill Lynch concludes, “2006 set a low bar for company performance and we believe 2007 will show an improvement.” The investment bank predicts that Makhteshim Agan will post a net profit of $217 million on $2.03 billion revenue in 2007 and a net profit of $268 million on $2.15 billion revenue in 2008. It predicts that the company’s earnings per share will rise by 172% in 2007, compared with 2006, to $0.49, and will rise by a further 18% to $0.58 in 2008.
Citigroup reiterated its price target of NIS 40 for Makhteshim Agan, and noted that it was relatively inexpensive compared with Syngenta International AG (NYSE:SVT; SWX;SYNN) and Monsanto Company (NYSE: MON). The investment bank was pleased with the company’s second quarter growth, stating, “20% growth on strong demand and share gains. Growth was impressive globally: Europe +23%, North America +24%, and South America +26%. European demand was robust, with several oilseed products sold out. Pricing remains an issue in the competitive US market, but volumes were strong.”
Citigroup adds that the outlook for the second half of the year is strong. “Brazil (c.20% sales) should be robust as the Southern Hemisphere plants its crop. Brazilian soybean acreage is expected to grow 5-10%, with further GM (herbicide tolerant) penetration. As the global number two in glyphosate, Makhteshim Agan stands well positioned to benefit as glyphosate-tolerant soybeans gain market share. We expect c.25% growth for the company in Brazil. We expect actions to date to deliver results in the fourth quarter as procurement savings and redundancies flow through.”
Citigroup’s forecasts for the company are more conservative than Merrill Lynch’s. Citigroup predicts that Makhteshim Agan will post a net profit of $200.3 million ($0.46 per share) on $1.98 billion revenue in 2007 and a net profit of $252.4 million ($0.58 per share) on $2.09 billion revenue in 2008.
Published by Globes [online], Israel business news - www.globes.co.il - on August 14, 2007
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