Incitec prospers on food demandArticle from: Font...

Incitec prospers on food demand
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By Andrew Carswell
May 06, 2008 12:00am
THE global food shortage, which is leading to food riots in many parts of the world, continues to provide prosperous times for Incitec Pivot.

The fertiliser giant yesterday heralded a half-year profit of $169.8 million, a mammoth 197 per cent increase on the previous corresponding period last year.

The soaring price of fertiliser, driven by the quest to improve crop yields, continues to be the primary factor.

The price of diammonium phosphate (DAP) - a key ingredient in fertiliser produced from Incitec Pivot's Queensland deposits - has jumped to $US1220 a tonne, up 140 per cent over the last six months, and up 380 per cent since January 2007.

It is this factor above all else that analysts believe will push Incitec Pivot shares above $200, the first Australian company to reach such rarified air since the 1970s nickel boom that sent Poseidon to over $270.

Yesterday's result, which oddly failed to move the company's share price upwards, was slightly higher than the consensus analysts' forecast of $167.9 million.

The company now expects higher annual earnings than previously forecast after delivering its full-year cost savings in the first six months.

"The current forecast between $700m and $730m looks very conservative," Incitec chief financial officer James Fazzino said. "Our internal forecast at the moment is $850m."

IPL also announced an interim dividend of $2.04, up 245 per cent.

ABN-Amro Morgans analyst Belinda Moore told The Daily Telegraph the good times at IPL should continue, with DAP prices likely to increase in the short term.

"The prices won't be going backwards anytime soon and some even suggest they will be going higher," she said. "We would expect in the next 12 months to see Incitec Pivot shares over $200 a share."

In a research paper, Citigroup analysts said: "So long as food price inflation remains a concern, fertiliser producers should continue to enjoy unprecedented pricing power in a supply constrained market."

Analysts believe investors are waking up to the value that lies in IPL's tiny rivals, the majority of whom are yet to dig an ounce of phosphate or potash out of the ground.

"There are a few small mining companies that are on the pathway. Minemakers is a company whose name is being thrown around lately," Ms Moore said.

Other companies on the radar include potash company Reward Minerals, South Boulder Mining, Mantle Mining and Joe Gutnick's Canada-listed Legend International.