Analyst queries stability of agrochemical prices

"There are many uncertainties concerning Makhteshim-Agan's ability to maintain the stability of its operations," writes Limor Gruber, head of Psagot Investment House's research department. "Reports from companies in the [agrochemicals] industry indicate that the upward trend in prices over the past nine months is slowing considerably, and that sales figures at most companies have declined."

Gruber further writes that because of the nature of the agrochemical industry, fears that low demand could lead to lower prices, and the negative developments against the backdrop of weaker currencies around the world, Psagot is retaining its market perform recommendation for Makhteshim-Agan, and its 12-month target price of NIS 24.60.

"We will see the impact of the currencies for the first time this month," writes Gruber, "as the weakening of the euro and the Eastern European currencies [against the shekel] hurt revenues and gross profits."

Even so, Gruber notes that this loss of profitability will be offset by the change in the exchange rate between the shekel and the Brazilian real, the currency used to pay most of Makhteshim-Agan's non-raw material manufacturing costs.

Psagot's analysts figure that sales throughout the agrochemicals industry will be lower in the first quarter of 2009 than in the parallel last year.

Another factor expected to hurt Makhteshim-Agan's gross profitability is that during the first half of this year the company will be selling expensive inventory that accumulated during the second and third quarters of 2008.