Analysts were quick to laud the first quarter results reported today by Israel Chemicals Ltd. (TASE: ICL), and they were not ashamed to admit that their forecasts were soundly beaten. Both Merrill Lynch and Citi reiterated their "Buy" recommendations for the share.
Citi analyst Daniel A Mon cited the fertilizer businesses as the drivers of higher than expected operating income, which came in at $465 million, beating his own estimate of $268 million and the consensus $296 million. Mon had also expected a dividend payout ratio of 70%, higher than the actual 50% announced, but explained, "Management believes that the exceptionally high level of profits warrants some flexibility in the payout ratio".
Lehman Brothers also underestimated operating income, calling for $308 million. Analyst Joseph Wolf noted that potash sales reached $581 million in the quarter, up from $276 last year and above Lehman's $430 million forecast. Operating income in potash was $280 million, and operating margin jumped to 48% from 32.5% in the previous quarter. Wolf pointed out that "this margin should improve over 2008 as pricing increases follow". Operating margins in the phosphate business also jumped to 34%, from 18% in the previous quarter.
Wolf explained that "the operating leverage of higher pricing continues to be a source of upside surprise", and should impact future expectations.
Merrill Lynch noted that fertilizer prices have been "positively impacting performance in recent quarters", and adds that the first quarter "is just an indication of better things to come", as it takes longer for MOP price increases to feed through to the results than phosphate price increases.
Merrill also likes the move by Israel Chemicals to rely more on natural gas for its own uses. "Also factoring in the current crude/natural gas prices, we believe that the company's move to natural gas prices in 2009 could lead to a higher rate of saving than originally indicated by management ."
Merrill now expects 2008 revenue to reach $6.5 billion, and calls for $9.1 billion revenue in 2009.
Published by Globes [online], Israel business news - www.globes-online.com - on May 27, 2008
© Copyright of Globes Publisher Itonut (1983) Ltd. 2008