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)
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Last
$3.04 |
Change
0.030(1.00%) |
Mkt cap ! $5.817B |
Open | High | Low | Value | Volume |
$3.04 | $3.05 | $3.01 | $13.72M | 4.522M |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
3 | 77956 | $3.03 |
Sellers (Offers)
Price($) | Vol. | No. |
---|---|---|
$3.04 | 202613 | 7 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
3 | 77956 | 3.030 |
5 | 200468 | 3.020 |
2 | 12652 | 3.010 |
2 | 2008 | 3.000 |
1 | 8350 | 2.980 |
Price($) | Vol. | No. |
---|---|---|
3.040 | 202613 | 7 |
3.050 | 207413 | 16 |
3.060 | 208637 | 8 |
3.070 | 58532 | 7 |
3.080 | 73300 | 2 |
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