Investment Thesis:
- Operational excellence at the WALA ammonia plant, operating at or above nameplate capacity and subsequent cash flows.
- Current strength in commodity / fertilizer prices is expected to continue over the short term – consensus earnings may need to be upgraded for FY22 if current spot prices hold up.
- Leverage to a lower AUD/USD rate.
- Ongoing focus on productivity gains help support earnings.
- Strong balance sheet provides flexibility to undertake inorganic growth opportunities or implement capital management initiatives
Key Risks:
- Manufacturing disruptions including risk of larger incident
- Commodity / fertilizer prices normalize or correct sharply.
- Disappointment on capital management announcement
- Further decline in key resources end market (Coal remains in a structural decline trend).
- Market volatility and oil price movement
- Higher AUD/USD
- Drought / bad weather impacts operations or impact fertilizer markets.
Key highlights:
- Incitec Pivot (IPL) FY21 results were a strong beat relative to consensus expectations due to the very strong fertilizer prices.
- Group revenue was up +10% to $4.35bn, consisting of DNA up +5%, DNAP down -6% and Fertilisers APAC up +26%.
- Excluding significant items, group operating earnings (EBIT) was up +51% to $566.4m, predominantly driven by the recovery in earnings in Fertilisers APAC which saw EBIT jump to $268.4m from $26.2m in pcp.
- Group underlying NPAT was up +91% to $358.6m and free cashflow was up +34% to $267m.
- Dyno Nobel Americas (DNA) FY21 segment EBIT fell -9% in constant currency terms to US$141.2m, driven higher by Explosives up +5% up US$126.7m and Agriculture & Industrial Chemicals delivering EBIT of US$10.9m (vs US$1.3m in pcp)
- Dyno Nobel Asia Pacific (DNAP) FY21 EBIT declined -6% over pcp to $140.2m, with growth in Technology (up $14m and in line with guidance) and costs savings program ($9m sustainable cost savings), more than offset by impact from contract renewals ($12m net decline), turnaround impact at Moranbah ($15m), decline in international business and W.A. contracts ($3m).
- WALA is delivering more consistent performance and is expected to run at nameplate capacity in FY22. The reliable performance of this plant is important to the IPL investment thesis, although it remains host to non-controllable factors
- IPL is enjoying very strong fertiliser prices, which are expected to remain elevated well into FY22.
- Coal exposure remains a weak spot in IPL’s investment case, however Q&C activity will be supported by infrastructure spend in the U.S.
Company Description:
Incitec Pivot Limited (IPL) is a global industrial chemicals company. The company manufactures and distributes a range of industrial explosives, fertilizers, related services, and products to the mining and agriculture industries. Its industrial explosives’ business is the number one manufacturer (by tonnes) in the US and number two distributor and manufacturer (by tonnes) in Australia. The company’s fertilizer business is the number one manufacturer in Australia (by volume and revenue) and the number one distributor in eastern Australia (by volume and revenue). The company operates the following key divisions: Dyno Nobel Americas (DNA), Dyno Nobel Asia Pacific (DNAP), Incitec Pivot Fertilisers (IPF) and Southern Cross International (SCI).
(Source: Banyantree)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.