and from Macquaire-Incitec Pivot Limited-DAP fundamentals have...

and from Macquaire-

Incitec Pivot Limited-DAP fundamentals have improved Event
-Global fertiliser company Mosaic reported 1Q10 earnings of $0.23 per share, below the consensus estimate of $0.35 per share. Results were impacted by a decline in market selling prices for phosphate as well as a decline in potash
sales volumes and selling prices.

Impact
-Mosaic¡¦s phosphate commentary was positive, as fundamentals have improved. Mosaic expects strong demand in calendar 2010 as farmers increase application rates in response to high 2010 new crop prices and the need to replenish nutrient levels. DAP prices appear to have bottomed in the first quarter of 2010, and inventories for North American phosphate producers are at their lowest levels since May 2006. The long-term outlook for crop nutrients remains positive. Separately, we note that 4Q is a seasonally softer demand period for DAP as Indian/Pakistan demand drops off. This could see DAP price weakness in the near term, although inventories are
generally at low levels, and we expect a strong demand pick-up in 1Q10 as the North American spring season kicks in.

-IPL reports FY09 results on Monday, 16 Nov. We forecast $342m vs guidance of $380m. FY09 consensus NPAT of $343m appears to have captured the negative impact of a tough US macro on Dyno and higher A$. As previously noted, the missing link for fertiliser continues to be grain prices. Soft commodities are usually correlated to hard commodities and the A$, although the excess supply of grains has weighed on prices, causing this relationship to decouple thus far.

-The real focus for the market is FY10 and FY11. We think an earnings recovery for IPL is more likely in FY11 than FY10. We forecast $363m NPAT in FY10, which is c10% below consensus of $394m. We expect conditions to remain tough in the US explosives market over the next six months. Factors to watch for include construction data (eg, US housing recovery, timing of US stimulus) and any improvement in US thermal coal demand. On the positive
side, US natural gas prices (futures) have almost doubled in the last month to US$5/mmbtu. Over time, this should encourage US power generators to use more thermal coal as price relativities vs gas close up.

Earnings and target price revision
-No change.

Price catalyst
-12-month price target: A$3.45 based on a DCF/Sum of Parts methodology.

-Catalyst: FY09 results on Monday, 16 November 2009.

Action and recommendation
-We maintain an Outperform on IPL and a $3.45 target price. The key thematic is IPL's operational leverage to an eventual improvement in US explosives and global fertiliser demand. There are some near-term headwinds re FX and Dyno US, although IPL is a cheap global cyclical at 12x PER, which represents a 27% discount to the market on close to bottom-of-the-cycle earnings.