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Strong fertilizer prices result in good earnings for Incitec Pivot for FY21

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)

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Dividend Stocks Shares

Westpac Shares Under Everyone’s Watchlist After The Company Posts AUD $3.5 billion Cash Profit

It was a similar story for its cash earnings, which were recorded to be around AUD $3,537 million in the first half. This indicated a 256% increase over the prior corresponding period and a 119% increase over the second half of FY 2020. 

It also consists of the Consumer earnings of AUD $1,592 million, business earnings of AUD $920 million, Institutional earnings of AUD $230 million, New Zealand earnings of NZ$583 million, and Specialist earnings of AUD $134 million.

Furthermore, even if the notable items from all periods is adjusted, Westpac’s earnings were brilliant during the half. Excluding notable items, Westpac reported cash earnings of AUD $3,819 million, up 60% year on year and 35% on the second half of FY 2020.

The Return On Equity (ROE) for the company increased from 2.9% to 10.2%. Altogether the Westpac’s board also declared a fully franked interim dividend of 58 cents per share. 

The Management’s Commentary

Peter King, Westpac Banking Corp’s CEO, commented,”It has been a promising start to the year with increased cash earnings, growth in mortgages and continued balance sheet strength. First half earnings were considerably higher than the prior corresponding period, mainly due to an impairment benefit reflecting improved asset quality and a better economic outlook. Notable items were also lower.”

Mr King also revealed that the bank’s balance sheet has strengthened.

He explained: “We improved balance sheet strength, with our Common Equity Tier 1 capital ratio rising 153 basis points to 12.34 per cent.”

Another positive that Mr King pointed out was the progress it has made with its new operating model.

Mr King said: “Importantly, we are beginning to see the benefits of our new operating model through improved performance. Our Australian mortgage book increased $2.6 billion over the past six months, with good growth in owner occupier loans partly offset by lower investor lending. Owner occupier loans increased 3 per cent, with first home buyers making up 13 per cent of new loans. We also managed margins well, with the margin up six basis points from Second Half 2020.”

The chief executive also gave investors an update on how the bank is faring in respect to COVID-19.He commented: “Australia and New Zealand have managed the pandemic well and we are proud to have helped so many customers return to full repayments. Stressed exposures to total committed exposures ended the half at 1.60 per cent, compared to 1.91 per cent at 30 September 2020. While the economic outlook is more positive, there is still some uncertainty and we have remained prudent in our impairment provisioning.”

After posting stellar financial results, the Westpac Banking Corp also declared some major cost cutting plans over the coming years, which could give the Westpac share price a lift. The company is currently targeting an $8 billion cost base by financial year 2024 to materially improve its efficiency. This compares to a ~$10.2 billion cost base in FY 2020.

The CEO of the company stated,”A significant reset is required to ensure the business is cost competitive over the long term, particularly as we navigate the pandemic’s recovery phase and an extended low-rate environment. The main drivers are simplification and digitisation as we exit all specialist businesses and accelerate our digital transformation.”

“We need to do things differently to deliver a competitive cost base, including redesigning and digitising many of our processes. We expect costs to increase in FY21 as we deliver on our Fix priority, before starting to fall from FY22,” he added.

About Westpac Banking Corp (ASX: WBC)

Westpac Banking Corp is one of the Australia’s big four banking company and the oldest banking financial services group in Australia. Westpac has a global business with its operations and branches located in Australia, New Zealand, London, New York, Hong Kong and Singapore. The Westpac was established in 1817 with its headquarters in Sydney, Australia. Westpac is one of the largest companies listed on the ASX in terms of Market Cap, customers and earnings. 

Global Markets

Global Market Outlook

Global equity markets retraced, 2020 continues to surprise the market with pandemic, the shutdown of the global economy, the deepest recession since the 1930s, and global equity market collapse. Tighter valuations increase the risk of further market volatility, particularly ahead of the divisive U.S. elections.

Technology and Healthcare stocks valuations are elevated, and the U.S. federal elections create uncertainty around tax changes, government regulations and the re-escalation of China/U.S. trade tensions. Beyond this, the market looks set for a rotation away from technology/growth leadership toward cyclical/value stocks. This also implies a rotation toward non-U.S. stocks with Europe and emerging markets the main beneficiaries.

The unemployment rate continues to decline and fell by more than expected in coming months. However, the weekly series of payrolls indicated that job losses had actually increased over the month.

Index Performance

S&P 500NasdaqRussell 100010-Year Treasury
M (%)M (%)M (%)M (%)
Yahoo Finance, (As of September 30, 2020)
Global IndexSeptemberYTD
Hang Seng (China)-6.82-16.78
Kospi (Korea)0.075.93
Nikkei (Japan)9.68-1.99
Sensex (India)-1.45-16.84
Jakarta Composite (Indonesia)-7.03-22.69
Bovespa (Brazil)-4.8-18.42
IPC All-Share (Mexico)1.68-13.97
Merval (Argentina)-11.9-0.99
ASX 200 (Australia)-4.04-12.99
DAX (Germany)-1.43-3.69
CAC 40 (France)-2.91-19.65
Dow Jones Russia Index (Russia)-6.14-23.73
FTSE 100 (United Kingdom)-1.68-22.25
Yahoo Finance, (As of September 30, 2020)


The November election brings more volatility in the stock market. A Biden victory with Democrats sweeping both chambers of Congress would likely generate the most short-term volatility coupled with US – China trade war.  Strong Recovery is expected as a result of economic re-opening, fiscal- monetary support.


The Europe direct fiscal policy boosted by state guarantees for corporate debt and the European Central Bank’s support for bank lending through the TLTRO3 program. The most significant action has been the European Recovery Plan, a €750 billion (6% of GDP) package of loans and grants that will be financed by the issuance of bonds jointly guaranteed by all 27 members of the European Union. Europe’s recovery should continue over coming quarters. A hard Brexit on World Trade Organization terms is likely impact on market.


The economic recovery has been steady in country, but much of this has been easy lifting and some caution about the outlook is warranted given stretched household budgets and limited inbound tourism.  Domestic economy being cushioned to some degree by recent monetary and fiscal policy actions.. The Australian government is set to announce new measures in the October budget. Low demand from Asian market especially from China is the concerning issue for many sectors.

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