With two days to go before Israel Chemicals (TASE: CHIM) releases its second quarter results, Merrill Lynch analyst Haim Israel has published an upbeat report on the company.
"We expect a strong set of results, driven by an upbeat fertiliser performance but somewhat offset by lukewarm bromine results," Israel writes.
"Overall, we expect revenues and EBITDA to rise by 12% and 30%, respectively (to $948million/$217million), triggered by a 22% hike in fertiliser sales. Note that the year-on-year comparison is somewhat misleading, as potash sales were depressed last year as a result of protracted negotiations with China. However, this year not only are potash prices at an all-time high, but volume shipments have accelerated, turning ICL’s large inventories into a “time-to-market” asset.
"On top of this, the TSP price surge will start to penetrate the bottom line in the second quarter, and even more notably in the second half. However, as we have noted in the past, the bromine market is going through a soft patch, both in volume and price terms. We forecast that sales in the Industrial division will fall by 19% year-on-year and that EBIT margins will reach 22% versuss 27% last year.
"We are bullish on ICL and consider it one of our top picks in Israel, although it continues to underperform PCS year-on-year. Despite the correlated fundamentals, we would not recommend a pair trade between the two, due to: (1) ICL’s short-term disadvantage on the P&L vs PCS relating to bromine; (2) the improved nitrogen outlook, flattering PCS’s bottom line; (iii) the limited valuation gap; and (4) the investor appetite for high-beta names to play global agflation, which PCS offers."
Israel Chemicals shares are currently at NIS 31.85 on the Tel Aviv Stock Exchange. This compares with a share price of just over NIS 19 a year ago.
Published by Globes [online], Israel business news - www.globes.co.il - on August 20, 2007
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