Discount makes NIS 167m provision for Makhteshim

Discount Investment Corporation made a NIS 167 million provision in the second quarter of the year for a decline in the value of its stake in agrochemical company Makhteshim Agan. The provision was a major factor in the 64% drop in Discount's net profits for the quarter. The company, which is part of the IDB Holdings Group, finished the quarter with a net profit of NIS 535 million.

	Erez Vigodman.
	Photo by: Moti Kimche

Discount Investments set aside the funds after its accountant valued the firm's stake in Makhteshim at $1.124 billion, reflecting a price of NIS 20.30 per share - 50% higher than its current share price.

The valuation of Makhteshim by accountant Tzur Fenigstein of PriceWaterhouseCoopers, is NIS 133 million lower than a similar valuation he carried out in December of last year, and comes in light of updated projections regarding the state of company and its business environment.

Fenigstein predicts Makhteshim will finish the year with $2.5 billion in revenues, as opposed to $2.4 billion in his last forecast, but he says the company will have gross profits of $712 million, or 28.5% of turnover, rather than his earlier forecast of $741 million in revenues, or 30.9% of turnover.

Fenigstein is now looking for Makhteshim to turn an operating profit of $200 million for the year, 8% of turnover, rather than his December projection of $250 million in operating profits for 2010 and 10% of turnover.

His major reasons for lowering the company's valuation are the rise in the dollar against the euro and a drop in the prices of its products, most notably Glyphosate.

Fenigstein also assumes that the negative impact of weather conditions during the first half of this year on companies in the crop protection business would lead them to redouble their efforts in the second half, leading to increased competition, lower prices and reduced prospects of higher profits in the second half.

Discount Investments has noted that if Makhteshim manages to wrap up its $1 billion acquisition of Albaugh, the chemical company will record a $60 million loss. Fenigstein's valuation of Makhteshim does not take the acquisition into account.