Citigroup rates Makhteshim Agan Industries Ltd. (TASE: MAIN) "Buy" in its latest review and sets a target price of NIS 40, NIS 4 higher than its market price yesterday.
"On the basis of sales, Makhteshim is the world's largest generic crop protection company," says Citigroup analysts Andrew Benson, Sophie Jourdier, and Daniel Mon. "Looking at the crop protection market as a whole (not just the generic component), it ranks fourth in Europe and seventh globally with a 5% market share. It has a broadly based product portfolio and has grown successfully via acquisitions, new product introduction and the development of proprietary formulations."
The Citigroup analysts believe Makhteshim started 2007 on the right footing. "Makhteshim began 2007 with the legacy of a challenging 2006 and high inventories. It underestimated the strength of the upturn and struggled to meet demand with the result that costs appear to have been significantly higher than they could have been. They are addressing this," they write. "The reduction in EU land set-aside will support increase planted acreage (and hence volume growth) in 2008. Weather vagaries aside, market conditions should improve next year."
The analysts also note the many risks inherent in Makhteshim's specific industry. "We rate Makhteshim "High Risk" because the inherent volatility of earnings caused by factors outside its control, such as the weather and competitor pricing strategies. There are many risks that could prevent the share from reaching our target price."
Benson, Jourdier, and Mon nevertheless give Makhteshim a strong endorsement. "These results could have been stronger but a 56% increase is hardly a poor outcome. We see growth momentum being sustained in 2008. Makhteshim trades well below its peers and below our view of its fair value," they conclude.
Makhteshim's share lost 3.4% in morning trading on the Tel Aviv Stock Exchange (TASE) giving the company a market cap of NIS 16 billion.
Published by Globes [online], Israel business news - www.globes.co.il - on November 7, 2007
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