Excellence Rates Israel Corp at Buy Despite Travails

Analyst sees Zim needing another debt arrangement, and sees union, public blocking sale of Israel Chemicals.

The Zim international shipping company could need another debt arrangement and Oil Refineries may need support from The Israel Corporation, suspects analyst Liat Glazer of the Excellence-Nessuah brokerage firm. Yet she has started analytical coverage of Israel Corporation with a Buy recommendation and a price target of NIS 3,156 per share, which is 20 percent higher than the share’s share price yesterday.

On the upside, Israel Corporation is trading at a discount of 35 percent off its tradable assets, she calculates. On the downside, the holding company's stock could suffer if Zim does need another debt arrangement and if electric-car venture Better Place requires more support.

As for subsidiary Israel Chemicals, Glazer believes that if the Potash Corporation of Saskatchewan buys the controlling interest in the company, it would boost the stock’s value. But she doesn't think that's going to happen, if only because the state will quash a selloff because of public outrage. Also, the labor union at ICL is horrified at the concept.

Meanwhile, ICL, which among other things makes potash fertilizer, will do well this year because of the underlying statistics on farming worldwide, she predicts. Glazer foresees Israel Chemicals selling five million tons of potash in 2013, up from 4.4 million tons in 2012.

Meanwhile, Glazer feels the reason Israel Corp is trading at such a heavy discount is uncertainty about Zim possibly needing to reschedule its debt again. She suspects the discount may grow in the short term, but it could drop within a year.

Glazer also believes that Zim will continue to weigh on Israel Corporation’s share and results. While Zim should achieve better EBITDA this year than in 2012, it may have run in the red during the last quarter of 2012 and the first quarter of 2013.

Since Zim is liable to sail into another squall and need more help in 2013, Glazer puts Zim’s value at zero, even though peer companies are trading at 0.8 times their equity. If Zim were, it would be worth $200 million.

Glazer also values the Chinese car-manufacturing company Quros and electric-car venture Better Place at zero.

She has two scenarios for Better Place’s future: either the company will close, or it will receive another cash boost. In any case but outright closure, it could be quite a few years before the company becomes profitable. Glazer believes that 2013 will be a make-or-break year for Better Place, since it has only enough cash to survive until mid-2013. The company is now dependent on an additional investment since its new strategic plan – changes in management and large-scale layoffs at the end of 2012 – did not improve its situation significantly.

One ray of light in Israel Corporation’s portfolio of companies is IC Power. Glazer assigns it a value of NIS 2.2 billion and believes its EBITDA will increase in 2013 by $60 million once it completes a project in Peru and begins operating the Mishor Rotem Power Station.

And last but not least, Glazer suspects that Oil Refineries (37.1 percent) could need financial support to bridge the gap between its cash needs and its financial sources, or receive guarantees for loans.

Reuters