May 24, 2012
Israel Chemicals'' Q1 results better than expected
On Wednesday (May 23), Israel Chemicals (ICL) reported its first quarter results as better than expected, as demand for fertilisers picked up in the second quarter.
"From the beginning of the second quarter there has been a re-awakening of demand in the fertiliser market," the world''s sixth-largest producer of potash said on Wednesday.
ICL noted that at the end of the first quarter it signed contracts with Chinese importers for the shipment of 670,000 tonnes of potash in the first half of 2012.
"Given this contract and decreased inventories in the global supply channels, coupled with strong farming fundamentals, this should result in improved demand in the second quarter," Citi analyst Andrew Benson said.
Since the beginning of the second quarter, Brazil''s rate of potash imports has increased significantly and the trend is expected to continue through the third quarter until the peak of the fertilising season in the beginning of September, ICL said.
The market for phosphate fertilisers has begun to improve due to the return of Indian buyers to the marketplace as well as to strong demand from Brazil, Asia and the US.
"While higher royalties and costs will impact the results looking out, the farming fundamentals are strong," said Benson, who sees ICL shares as being undervalued and rates them "buy".
ICL struck a deal with Israel''s government in late 2011 to pay 10% in royalties on minerals extracted from the Dead Sea. The firm, which has an exclusive permit to extract minerals from the Dead Sea, had previously paid 5% royalties.
ICL will also pay ILS3.04 billion (US$792 million) as part of a project to extract salt build up on the Dead Sea floor. Shares in Israel Chemicals were down 0.5% to ILS39.98 (US$10.37) in midday trade, compared with declines of more than 1% in the main Tel Aviv indices.
Canada''s Potash Corp, the world''s largest fertiliser producer, owns 13.9% of ICL, which is controlled by conglomerate Israel Corp.
ICL''s net profit in the first quarter rose to US$288.9 million from US$279.7 million a year ago. Revenue increased to US$1.552 billion from US$1.528 billion, its highest ever in the first quarter. Analysts polled by Reuters had on average expected the company to earn US$267.2 million on revenue of US$1.524 billion.
During the quarter, ICL sold 919,000 tonnes of potash, a 12% drop from a year earlier, but at increased prices. The bottom line benefited from a lower tax rate and reduced financing expenses, which offset a rise in raw material and energy costs.
UBS analyst RoniBiron said he expects 2012 to reflect higher energy costs due to a temporary shortage of natural gas in Israel.
"We view first quarter results as backward looking," said Biron, who rates ICL "buy" with an ILS55 (US$14.27) price target.
ICL declared a dividend of US$200 million for the quarter compared with US$195 million a year earlier.