Even though Israel Chemicals (TASE: CHIM) posted record second quarter results, including the highest profit for any Israeli company, Deutsche Bank believes the best may yet be to come, and maintains a "Buy" recommendation for the stock. "With strong fundamentals in the fertilizer segment, and support from other segments, we expect ICL to continue to post strong results in upcoming quarters," analysts Richard Gussow and Dan Harverd write.
"The average potash price in the second quarter of 2008 for external customers was $546/ton, well below the current spot price, which hovers around $1,000/ton, implying potential upside in upcoming quarters. Our 2009 estimated average potash price is $ 801.
"While there are concerns that the recent dip in commodity prices could affect farmer demand for fertilizers, stocks-to-use ratios are at historically low levels, leading us to believe that longer-term fundamentals remain strong. Also, the already tight global supply of potash could be significantly affected by an extended strike at Potash Corp of Saskatchewan," the analysts note.
Gussow and Harverd set a target price of NIS 80 for Israel Chemicals shares, which compares with a current price on the Tel Aviv Stock Exchange of NIS 61.47.
Among risks to their estimates, the analysts cite a possible fall in grain prices, that phosphate price rises may prove short-lived, and that freight rates and other input prices may rise.
For Citi Investment Research, analysts Sophie Jourdier, Andrew Benson, and Vidya Anant accompany their "Buy" recommendation with a slightly more aggressive price target of NIS 85 for Israel Chemicals. "We believe the recent set back in ICL and other fertiliser stocks presents a buying opportunity. Grain markets remain tight; farmer economics remain strong; potash prices continue to climb," they write.
Citi's analysts add a note on Israel Chemicals' dividend policy, saying, "Despite ICL's generous dividend policy, it seems highly likely that the company will build up a large net cash position over the next 12-18 months. This increases acquisition risk for the shares but if no acquisitions present themselves we would expect this cash to be returned to shareholders via dividends over time."
Published by Globes [online], Israel business news - www.globes.co.il - on August 21, 2008
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