UBS מוריד את ההמלצה למניית כימיקלים לישראל בעקבות ירידת מחירי הדשנים

UBS lowers potash price estimates

The UBS global chemicals team updated today its potash price forecast, lowering FOB Vancouver benchmark from an average of US$300/tonne this year to US$275/t in 2016E and $250/t in 2017-20E. The change in estimates reflects an increase in

competitiveness in the US and globally, leading to narrower spread to the marginal cost.

For the full analysis, see our report, UBS Global Fertiliser Market Outlook:
Stiff winds ahead. Having recently updated our model and accounting for ICL's geographical mix, we trim its realised price by another $20/t in 2016E and $30/t in 2017E onwards, leading to EPS cuts of 9% and 13%, respectively.

ICL: more than just potash to the story Following a series of investor meetings with the CEO, we believe potash sentiment diverts investor attention away from a few other elements in the company.

1) More than 50% of EBIT is non-potash and mostly specialty phosphate and bromine. Mgmt is optimistic about the Sde Barir concession in Israel; and expects the JV with Yunnan in China (closed on Monday) to boost its reserves, secure its vertical integration, extend its geographical reach and turn into a more meaningful phosphate player. 

2) Cost reduction target of $350m by end of 2016 is on track and may be underestimated by the market. Mgmt provided more granularity on the makeup of this target which includes €40/t reduction in Spain by 2020, $40/t in the UK by 2016 and $10/t in Israel by 2016. We also expect incremental regulation cost to fall below $100m especially at current potash prices, and harvesting cost not to move into the P&L before 2020E.

Capacity expansion Mgmt sees potential for adding 2.7mt of potash capacity by 2025, reaching 7.8mt, as well as 1mt of polyhalite and 0.5mt of SOP. Of this, Spain should add 1.3mt and Allana Potash 1.5mt and 0.5mt SOP in two stages (most likely with a partner). Allana FID is expected by mid-16 and is not a consensus among investors. Mgmt sees low geological risk with the main challenge being market education in Africa and stable fiscal policy.

Valuation: Lowering PT to NIS27 from NIS31, maintain Buy We reduce our PT to NIS27 on lower potash price estimates. Our PT is DCF-derived and is net of $0.43 DPS (c8% yield). That said, we believe ICL's current share price implies a rather pessimistic scenario for the company beyond mid-term and maintain our Buy