Lehman Brothers reiterates its "Overweight" recommendation for Makhteshim Agan Industries Ltd. (TASE: MAIN) in a new review following the publication of the company's financial report for the second quarter last week. The investment bank also reiterates its NIS 38 target price, saying that the company offers a 30% upside on its fair value estimate.
Lehman Brothers analysts Joseph Wolf and Jean De Watteville note that Makhteshim Agan's second quarter results were better than expected thanks to market gains in crop protection, excluding fungicides. They attribute the negative market reaction to poor cash flow because of steep inventory buildup. "We see this as an investment for buoyant second growth and expect a share price recovery. Longer term, we believe improved pricing environment and patent expiries of key chemical class (particularly Strobilurine) offer attractive opportunities."
Wolf and De Watteville assert that Makhteshim Agan offers greater value than its crop protection peers, Syngenta International AG (NYSE:SYT; SWX:SYNN) and Bayer AG (EXTRA; BAY; LSE: BYR). They also noted that Makhteshim Agan's 22% organic growth in crop protection was in line with the 14-30% growth achieved by its peers, Dupont (NYSE: DD), Dow Chemicals (NYSE: DOW), Syngenta, Bayer, and BASF Group AG (DAX: BAS; LSE: BFA).
Wolf and De Watteville raised their 2008 forecast for Makhteshim Agan to a net profit of $238 million on $2.56 million revenue from a net profit of $230 million on $2.46 billion revenue.
Lehman Brothers notes that Makhteshim Agan's net profit rose by 28.3% to NIS 68.8 million above the bank's forecast of 64 million, but less than the market consensus of NIS 75 million. Wolf and De Watteville attribute this to a higher-than-expected financial charge. They note that sales rose 25.8% to NIS 682.3 million, above the bank's forecast of NIS 658 million and the market consensus of NIS 661.2 million.
Makhteshim Agan is a unit of Nochi Dankner controlled IDB Holding Corp. Ltd. (TASE:IDBH) held through Discount Investment Corporation (TASE: DISI) subsidiary Koor Industries Ltd. (TASE:KOR).
Published by Globes [online], Israel business news - www.globes-online.com - on August 10, 2008
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