The share's potential at this point does not justify continuing to buy its stock, UBS rules on Frutarom (TASE: FRUT), a maker of essences, chemicals, and flavorings.
Analyst Joseph Wolf downgraded the Israeli company from Buy to Neutral, though he did not change his 12-month price target for the stock.
Wolf reassures that business at the company has not changed for the worse: it's all a question of pricing.
His 12-month price target for Frutarom is NIS 40.50, while the share price is presently at NIS 35.10. That leaves a 15.2% potential upside, while the required risk premium for investment in the market is 10.2%.
Therefore, the surplus yield that Frutarom offers above that risk premium is 5%, Wolf concludes.
He also thinks the probability of losing value on the investment is small. Frutarom declared a growth strategy including acquisitions. It didn't buy any companies in 2005 but during a conference call in November 2005, its management mentioned potential targets. An acquisition could catalyze a short-term rise in share price, says Wolf, but he left his target intact all the same.
The company's business is in good shape, he says: organic growth was 8% in the first half of 2005 versus 1-2% for its sector. But the adverse conditions in its market were felt in the second half, and organic growth shrank to 4%.