OREANDA-NEWS. March 02, 2010. Downward target price revision, Buy reiterated. We have revised our model for Silvinit, shifting it to IFRS financials and introducing the potash price assumptions from our Uralkali: Russians Yielding, But Not Giving Up of 21 December 2009. As a result, our 12-month Target Prices for Silvinit’s ords and prefs both dropped 24%, to USD 922 and USD 677, respectively, reported the press-centre of VTB Capital.

These imply 17% and 80% upside potential and so we are reiterating our Buy rating for both classes of share. The major risk is that prices and volumes come lower than our forecasts. We continue to view Silvinit prefs as more attractive than ords, due to their greater upside, cheap valuations (2011F EV/EBITDA of 3.7x means practically for free in potash universe) and dividends.

Silvinit as a pure potash play. The long-awaited recovery of the potash market is gaining pace: numerous contracts on the spot markets have coincided with the product being actively moved in Europe, in the US potash stocks have dropped almost to their 5-year average and major potash producers are fully booked for 1Q10. Prices have increased USD 20-40/t since the start of the year. Were it not for weak crop prices, currently depressed potash names would trade much higher.

Transparency improvement. Despite Silvinit being one of the top five global potash producers, the investment community has tended to ignore its shares: there were no IFRS accounts, liquidity was poor and management was unfriendly. However, transparency is now improving and in our view this has yet to be evaluated by investors. Silvinit has not only released IFRS financials (and promised to do so regularly) but management has started a constructive dialogue with investors.

Potential liquidity improvement. While liquidity is still an issue (the 5% liquidity risk is the main reason for the company’s RROE of 18%, one of the highest in our universe), it could change. Acron, which has an 8% stake in Silvinit ordinaries, has large liquidity problems and might consider selling the stake once value returns to potash names.