Ferret's Stock to Watch: DYNO NOBEL LIMITED 08:59, Thursday, January 18, 2007
A COMPANY TAPPING INTO THE HIGH GROWTH CHINESE MARKET
Sydney - Thursday - January 18: (RWE Aust Business News) ********************************************************
OVERVIEW ********
You could make a poor pun and describe Dyno Nobel and Fabchem as an explosives mix - but to shareholders' advantage.
This week both explosive makers jumped into the spotlight after Dyno Nobel (ASX:DXL) finally struck a deal in taking a 30 per cent stake in Fabchem, costing it $40.6 million.
Dyno Nobel's main objective is to lift its presence in China, supported by Fabchem which operates in Shandong where it specialises in detonator products and boosters which magnify the force of an explosive.
Fabchem is also listed in Singapore.
Dyno Nobel was taken over by a consortium headed by Macquarie Bank in 2005 at a cost of $2.2 billion and split into two.
The North American interests were float off in Australia and listed in April 2006, while the Latin American and Asian interests were sold off to Orica.
In the latest deal, it seems that Dyno Nobel is getting its foot back into China.
Chief executive Peter Richard says China is a large, high-growth market with industry consolidation opportunities being driven by a government mandate.
"We targeted Fabchem because of the quality of its business, overall safety record, its management and its reputation and understanding of the Chinese market," Mr Richards declared.
Meanwhile the total consideration of up to S70c per Fabchem share equates to $US31.8m which includes an up-front payment of S52c per share, an additional S13c per share payable upon achieving profit hurdles in 2008, and S5c per share payable upon Fabchem obtaining an export licence.
Following the acquisition Dyno Nobel plans to work closely with Fabchem management and board to enhance the successful growth of the company in China.
As part of this process, Dyno Nobel will nominate two representatives to Fabchem's board of directors.
Additionally, Dyno Nobel will have a senior manager seconded to Fabchem, reporting to the managing director of Fabchem, Mr Sun Bowen.
SHARE PRICE MOVEMENTS *********************
Shares of Dyno Nobel Ltd yesterday dipped 7c to $2.50. Rolling high for the year is $2.78 and low $2.20. The company has 805.9 million shares on issue with a market cap of $2 billion.
In August the company reported a strong first-half profit which was on track to exceed prospectus forecast. The net profit was $US44 million.
Commenting on the results, Mr Richards said the sound half-year result was a clear sign of the company's ability to execute and deliver on its stated business strategy. The result for the full year, expected to be around $US82.8 million, should be announced on February 26.
Referring to the Fabchem acquisition, Mr Richards emphasised that "This strategic acquisition is particularly significant because it now meets our internal financial criteria and gains us the best possible access to the growing Chinese market.
"Fabchem is a leading initiation systems supplier in China, has a scaleable and profitable business with growth potential, and strong government relationships at both the local and national level.
"By partnering with a local company we believe we can best leverage the existing Fabchem business by sharing our strengths in day-to-day explosives management, technology and export contracts," the CEO said.
The transaction is expected to be neutral to slightly accretive to Dyno Nobel's earnings in FY2007, and funding for the acquisition will be drawn from existing facilities.
BACKGROUND **********
Dyno Nobel is a global leader in the commercial and explosives industry with over 3,500 employees including some of the most highly trained blasters in the industry.
It provides blasting solutions and quality explosives products, with over a million tons of ammonium nitrate capacity and 32 manufacturing facilities on two continents (including state-of-the-art initiation systems facilities in the United States, Australia and Mexico), throughout North America and Australia, as well as to selected customers internationally.
Dyno Nobel traces its roots back to William Bickford's invention of the Safety Fuse in 1831 and Alfred Nobel's legacy of safety and innovation dating back to 1865.
Over 170 years later, every major explosives innovation has been developed by Dyno Nobel, starting with the invention of the Safety Fuse to the development of Slurry Explosives in 1956 and the creation of DynoConsult in 1999.
The company's recent innovations, including the NONEL detonator and the Titan series of emulsions, have positioned Dyno Nobel as a technologically advanced provider of products, services and solutions.
It develops and distribute a complete range of explosive products and services while the company is renowned for providing Value-In-Use solutions through its global consultancy division - DynoConsult.
The DynoConsult team works in close partnership with customers to provide holistic solutions that result in reduced operational costs.
In May 2003 Dyno Nobel and US-based The Ensign-Bickford Company (EBCo) merged their explosives capabilities, creating the world's leading explosives solutions company.
Both Dyno Nobel and EBCo have a major presence in blast-initiation systems and specialty blasting products.
Dyno Nobel says that by combining the respective strengths of both companies, customers will have even greater access to world-class technical leadership in initiation systems, explosives products, ammonium nitrate capabilities and delivery technologies.
In September 2005 Industri Kapital sold Dyno Nobel to a consortium of investors led by Macquarie Bank.
In April 2006 Dyno Nobel became a publicly listed company on the Australian Stock Exchange.
