| Michal Alsich, Director of the Brokerage Research Unit at Discount Brokerage
- This review was originally written on March 29
ECL (TASE 🙂 Group (ICL) is expected to enjoy a strong operating environment this year, which characterizes all sectors. For years, not so many positive market factors have been observed that are integrated at the same time. The rising prices of commodities are raising the prices of fertilizers, but not only that – it is accompanied by a significant decrease in the ability to sell potash in the world along with high demand.
Although we at Discount Brokerage are very optimistic, believing that the current cycle could continue into 2023, for reasons of conservatism we embody in the model a gradual decline in prices starting in the second half of 2022, with profit normalization in the coming years.
Even when we embody such a decrease in profits and normalize expectations, the model still embodies an upside. In conclusion, we continue with a positive recommendation for the ICL share. The share price, along with continued positive sentiment, results in a buy recommendation at a target price of NIS 47.
| Expect a very strong year in 2022
Although ICL has a limited production capacity, given all the factors, we expect a very strong year in 2022, with EBITDA of about $ 3.1 billion (above the company’s top expectations of about $ 2 billion) and a doubling in net profit to about $ 1.7 billion (the difference Between EBITDA and net there is, among other things, excess tax).
Our forecasts are high relative to market expectations. We believe that we will soon see the market raise forecasts, both from the company itself and from other factors.
Strategically, the high profits generated by ICL, beyond the improvement in the dividend amount, can, in our estimation, contribute to the improvement of the portfolio thanks to the acquisition of companies and new investments.
| Potash 2022: Increase in quantities alongside a jump in prices
We expect an increase in potash volumes in 2022 from about 4.4 million tons to about 4.8 million tons. This is due to an increase in production in Spain.
At the price level we are now seeing sharp increases every week. There are good reasons to assume that the current cycle can continue in 2023 as well, but for reasons of conservatism we expect a moderation, and contract with ICL an average annual price in 2022 of about $ 611 per ton. This price is close to the contract price with India and China ($ 590). We also embody in the model an increase in expenses, among other things, due to an increase in transportation costs.
| Potash in the coming years: Decrease in profit to more normative levels
The current situation is not expected to be maintained for years. Therefore, we embody in the model a fall in prices with an expected year representing a potash price of $ 350 per tonne.
From analyzing the supply-demand equation, we believe that in the future we will operate under an equilibrium market. Today, the company that has the ability to significantly increase supply is Notre Dame (NYSE :), and it operates responsibly, while maintaining the price level. BHP (NYSE 🙂 is expected to enter the market, but it will start production only towards the end of the decade, and this is an addition that in our estimation, you can assimilate into the expected demand, assuming that these will grow on average only (only a few percent).
| Strong environment in other activities as well
Bromine prices continue to be high, alongside handsome demand. In addition, there is a great awakening in the field of clear solutions. In the special fertilizers we expect beautiful growth from the union over a full year of the company acquired in Brazil, as well as organic growth. In phosphate the activity environment is very strong, although in the coming years we embody a decline, given the expectation of a more moderate environment in commodities.
The author is the director of Discount’s brokerage research unit. The above does not constitute a substitute for advice that takes into account the data and the special needs of each person. The author of the analysis has no personal interest in the recommended securities.