News: IPL Incitec Pivot Says Adverse EBIT Impact In 1H FY21 Expected To Be A$15M, page-9

UBS Report of 6 April 2021 IPL @ $2.68

Incitec Pivot 12m target increased to $3.05 from $2.85 Buy

Unexpected turnaround issues delay the WALA re[1]start, but fertiliser pricing continues to firm. Buy.

Plant reliability back in focus as WALA re-start delayedanother month

IPL has provided another disappointing manufacturing update, flagging FY21 EBIT will

be A$36mn lower due to additional repairs at the Waggaman ammonia plant (WALA)

arising from a dry gas seal failure. The repairs are under way and the plant is set to re[1]start in mid-April (was mid-March). The four-week extension to the turnaround follows

IPL's announcement in February (here) of a two-week delay to the turnaround due to

other unexpected repair activities. Today's update suggests the plant will be down for

c.13 weeks (vs. a seven-week budget) and result in a total EBIT impact of c.A$56mn.

We highlight FY21 is a heavy turnaround year for IPL with the Moranbah AN plant also

coming off-line in 2H21.The FY21 turnaround program is a key step in IPL's strategy to

achieve its 95% manufacturing reliability target (FY20 86%).

Fertiliser price rally underpins our EPS upgrades

Favourable agricultural conditions and ongoing strength in soft commodity prices have

supported the rally in global fertiliser prices (YTD: DAP +50%, ammonia +100%). As

such, we have upgraded our DAP/ammonia price forecasts given the stronger-than[1]expected recovery. These revisions underpin EPS upgrades of 29/10% in FY21/22E and

therefore more than offset the negative plant issues noted today. For DAP, we lift our

FY21/22E price forecast to $465/400t (was $397/380t) vs. spot $592t. While for

ammonia, we raise FY21/22E prices to $398/400t (was $322/365t) vs. spot $545t.

Retain Buy – strong fertiliser fundamentals underpin theearnings outlook

We retain our Buy rating on IPL, with the stock highly leveraged to the strong recovery

in global agriculture conditions and fertiliser pricing. We think IPL's share price and

earnings are significantly influenced by the DAP and ammonia prices, where both have

been recovering after a lengthy period of underperformance. We estimate that the

improved fertiliser pricing outlook will underpin 48% EBIT growth into FY21E and a FCF

generation of c.A$400mn, supporting an attractive FCF yield of 8% in FY22E (vs. long[1]run average of 6%) and a P/E of 15x.

Valuation: 12m price target A$3.05p/sh (was A$2.85p/sh)