keeps on dumping please!, page-10

UBS Investment Research

Incitec Pivot Limited

Moranbah delay hurts growth profile

􀂄 Result 5% ahead of UBS
Incitec?s net profit of c.A$180m was above our forecasts, although this was entirely due to higher DAP sales in the 1H and slightly better Moranbah provision write-back. Fertiliser earnings were sharply higher due to pricing leverage, while explosives earnings gained from a c.9% recovery in North American volumes and incremental Project Velocity savings. Our forecasts reduce by 2-4% over the next 2yrs, with the delay to Moranbah in FY12, partly offset by better FX hedging.

􀂄 Explosives earnings drive medium term growth
Our net profit forecast of c.A$565m in FY12 implies c.5% underlying growth despite a c.A$70m headwind from lower DAP prices. This is driven by a c.15% rise in underlying Dyno earnings reflecting the turnaround in North American volumes, final savings from Project Velocity and marginal contribution from Moranbah.

􀂄 Stock underperformance provides opportunity
Incitec provides attractive exposure to the recovery in global growth despite the recent sell-off in commodity linked stocks. Incitec is currently trading on an undemanding 11x our FY12E EPS, struck off a US$530/t DAP forecast next year, and also near an all time low against Orica.

􀂄 Valuation / Price target A$4.70 (was A$5.10)
DCF val?n falls to reflect earnings changes and higher near term capex.