Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Dyno Nobel set to relist on the ASX as Incitec Pivot gains on Ukraine war businesses
Fertilizer and explosives chemicals company Incitec Pivot (ASX:IPL) has posted a better than expected profit result boosted by a rise in fertiliser prices and strong demand for mining explosives coming from the company’s Dyno Nobel business. The strong rebound in demand for mining explosives comes on the back of a global push for decarbonisation.
The company has taken the opportunity to release plans to structurally separate its fertiliser and Dyno Nobel businesses to create two separately listed companies on the ASX. Both businesses have been performing well given the underlying conditions, making the decision to split the two, a fairly easy one.
Based on preliminary estimates and analysis undertaken to date, one-off costs are expected to be between $80 million and $105 million and ongoing costs are expected to be about $25 million to $35 million a year. The company expects to have the separation completed by the 1H23.
Highlights of the results:
- NPAT was up A$348m from A$36m on pcp to A$384m.
- EBIT was up $458m to $568m from $110m on pcp.
- EPS was up 17.9 cents per share from 1.9 cents per share on pcp to 19.8 cents per share.
- Net debt stands at $1.4bn but the Net Debt / EBITDA ratio is down to 1.0x from
- 2.1x on pcp
- Return on invested capital (ROIC) improved during the year to 10.1%, up from 3.2% on pcp
- Interim dividend of 10 cents per share declared, fully franked
Breaking down the two businesses –
- Dyno Nobel – Dyno Nobel Americas (DNA) posted an EBIT rise of A$220m to A$252m. Dyno Nobel Asia Pacific posted an EBIT rise of A$9m to A$79m.
- Fertilisers – Posted an EBIT increase of A$20m to A$257m
Managing Director and CEO, Jeanne Johns, said the company was able “to capture the very strong commodity price environment and foreign exchange tailwinds, as well as successfully manage inflationary pressures and supply chain disruptions. Our supply chain teams in both the Americas and Australia have done an outstanding job in responding to these challenges.”
Morgans have an Add recommendation with a target price of $4.56. The broker was confident IPL would post a strong result given its leverage to attractive industry fundamentals and the potential for further earnings upgrades. Morgans does say, however, that to realise its full potential, manufacturing outages need to stop. “IPL is benefitting from strong demand for fertiliser given favourable seasonal conditions in Australia and attractive soft commodity prices. Importantly, it is a
beneficiary of materially higher fertiliser prices. All fertiliser prices have now exceeded their previous supercycle high in 2008. Russia was a major exporter of fertiliser. The trade sanctions/port closures have further tightened global supply.
Morgans has further upped their FY23 and FY24 NPAT forecasts by 48% and 10% due to higher fertiliser prices.
