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.
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