ICL Group Ltd

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

ICL Group Ltd is a leading global specialty minerals company, producing potash, bromine, and phosphate-based products. These materials are primarily used in the agriculture, food, and industrial markets, with a focus on end-product sustainability and value.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview

ICL’s operations are structured into four main segments: Industrial Products, Potash, Phosphate Solutions, and Growing Solutions. Each segment caters to distinct markets and exhibits varying levels of competitive dynamics.

  • Industrial Products: This segment focuses on bromine compounds (flame retardants) and specialty minerals used in electronics, construction, automotive, and other industrial sectors. Key products include flame retardants, industrial solutions, and specialty minerals, tailored for diverse applications such as chemical synthesis and catalysts.
  • Potash: As one of the world’s largest suppliers of potash, ICL produces and sells potash, magnesium, and mixed salts derived from its Dead Sea operations, primarily used in fertilizers and industrial applications.
  • Phosphate Solutions: This segment produces a variety of phosphate-based products including phosphate rock, specialty phosphates, and phosphate fertilizers, which are sold to food, agriculture, and industrial markets.
  • Growing Solutions: This area is dedicated to specialty fertilizers designed for use in specialty agriculture, ornamental horticulture, and turf and landscape applications. This segment includes product innovation to improve yields and efficiency.

Market Landscape and Trends:

  • Diverse End Markets: ICL operates in the agriculture, food, and industrial markets, resulting in broad diversification and relative resistance to large-scale sector-specific downturns.
  • Growing Demand: Global megatrends like population growth, greater food and resource consumption, and rising living standards support strong, long-term demand in ICL’s end markets.
  • Sustainability Focus: There is an increasing focus on sustainability and food security across the value chain, driving demand for efficient and responsibly produced products from companies like ICL.
  • Consolidation in the Industry: The fertilizer market, including potash and phosphates, has seen increasing consolidation, leading to fewer, larger players controlling a greater share of global supply.
  • Geopolitical Risks: ICL’s mining operations in Israel are subject to geopolitical risk in the region, which could significantly disrupt production and profitability. In addition, trade restrictions imposed by various governments could negatively affect the ability of ICL to market products.

Competitive Landscape

  • Commoditized nature: The potash and commodity phosphate markets are known for their commodity-like attributes with limited differentiation. This can lead to increased price competition, with companies primarily competing on price.
  • Differentiated products: In contrast to potash and commodity phosphates, some of ICL’s specialty minerals and solutions are better differentiated from competitors’ products and have more limited competition in pricing. This includes their bromine-based products, as well as specific formulations of fertilizers.
  • Regulatory Barriers: Many industries served by ICL, such as fertilizers, and specialty minerals have regulatory restrictions that may limit the number of entrants, creating some protection for incumbents.

ICL’s Differentiation:

  • Geographical advantage: ICL’s Dead Sea operations provide a unique source of potash that is located in a region with few alternatives for production, potentially offering a cost advantage in its potash segment.
  • Integrated business model: ICL operates an integrated supply chain—from extraction to processing to distribution—allowing greater control over costs and product quality.
  • Specialized products: ICL’s diversified product mix is highly targeted at certain value added niche applications, like food and industrial ingredients that command a premium in pricing.

Legitimate Risks to the Moat and Business Resilience

  • Geopolitical volatility: The company’s operations in Israel and the Middle East are exposed to political instability and geopolitical risks.
  • Regulatory and Environmental Challenges: Stringent environmental regulations, changes in mining and water rights can lead to increased costs and create barriers for future operations. Also, the company may lose key licenses as a result of non-compliance.
  • Commodity Price Volatility: The commodity-linked nature of many of its products can lead to price volatility, impacting revenue and margins, particularly the prices of potash and phosphate.
  • Technological Disruption: Technological innovations could disrupt production processes or provide substitutes for some of the products offered by ICL.
  • Operational disruptions: Operational difficulties include accidents in mining or manufacturing, supply chain disruptions, changes in regulation, or the imposition of government actions.

Financial Analysis

  • Revenue: In 2023, ICL reported total sales of $7.5 billion, a 25.6% decrease from the previous year, reflecting lower prices across all segments, particularly for fertilizers.
  • Operating Profit: For 2023, operating profits of $1.14 billion represents a 66.3% decrease from the prior year. The company cited lower demand and input costs as drivers behind the losses.
  • Net Income: The company reported an $642 million net loss in 2023, compared with a $1.76 billion profit in 2022. Again, a large part of the losses can be attributed to decreases in raw material prices.
  • Leverage: ICL maintains a high degree of leverage, with a total of $4.7 billion in loans and debts. High debt can expose the company to interest rate volatility.
  • Capital Expenditures: The company reported $0.82 billion in capital expenditure, which will likely affect future growth and value.
  • Guidance: For the full year 2024, the company expects EBITDA to range between $1.2-$1.4 billion, as well as an average phosphate price of around 350$/tonne and average potash price of around $340 per tonne.

The company is guiding towards adjusted EBITDA of approximately $450 - $550 million for the next quarter which would likely result in a decline QoQ.

Understandability Rating: 3 / 5

The business model is moderately complex due to ICL’s operations spanning across a wide variety of sectors, as well as varying levels of competition. The reliance on external factors such as commodity prices, regulations, and geopolitical stability further complicates an investment thesis. Analyzing the business requires a deep understanding of the financial statements, the company’s markets, and supply chain mechanics.

Balance Sheet Health Rating: 3 / 5

While ICL has high equity and considerable assets, it also maintains a relatively high debt load. This may increase risks associated with interest rates and could potentially impair its ability to operate. The company’s balance sheet has had a variety of impairments due to changing values and write-downs, indicating that there are issues with the company’s capitalization or asset quality, leading to an overall less than stellar rating.

Recent Concerns/Controversies

  • The company’s profits fell heavily in 2023, due to the drop in the commodity prices in general as well as issues pertaining to the acquisition of the Brazil-based Fertilizantes Heringer S.A. .
  • There have been concerns about the company’s dividend policy, as it may affect the amount of capital available to further invest in the business.

  • Also, according to the 2023 annual report, the company has “identified 14 significant deficiencies, 1 material weakness related to the reporting structure”. This has created questions among investors about the overall quality of reporting.

  • Management has acknowledged the poor results, saying that 2023 “was a disappointing year,” however, they have also stated they were able to reduce losses as well as make changes to mitigate further issues in the future. They are still expecting the markets to be volatile in the near future.