Leader analyst: Makhteshim can't avoid inventory write-off: However, Yoav Burgan says the agrochemicals company may still be able to meet its sales targets.

Sun. July 12, 2009; Posted: 03:44 PM

Jul 12, 2009 (Globes - McClatchy-Tribune Information Services via COMTEX) -- LDR | Quote | Chart | News | PowerRating -- Leader Capital Markets Ltd. today responded to last week's announcement by Makhteshim Agan Industries Ltd. (TASE: MAIN) that the Brazilian authorities had shut down production lines for five pesticides at its local subsidiary Milenia Agrociencias SA, including inventory held by customers.

Analyst Yoav Burgan believes that in the worst case, Makhteshim Agan may suffer a significant loss in profits in the third quarter, due to Milenia. "We currently assume a gross profit margin of 29 percent," he writes, adding, "In any event, it appears that there will no choice but to write off part of the inventory in Brazil, in the amount of $10-15 million. The question is whether the Brazilian authorities will allow the company to collect formulations at its customers in order to reformulate them."

Burgan notes that Makhteshim Agan's large inventory levels enable it to provide alternative formulations from other regions. Since the company has time to ready its logistics to supply alternative solutions, it may still be able to meet its sales targets in Brazil for both the third quarter and the second half of the year.

Brazil is one of Makhteshim Agan's most important markets.

Makhteshim Agan's share rose 1.5 percent by early afternoon today to NIS 17.20, recouping part of losses in the preceding two sessions.

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