This morning, global chemical company Incitec Pivot (IPL) announced a $500 million capital return to shareholders. The HNW Income & Growth Equity Portfolios have a 2.5% weight to IPL. Key Points:
- Capital Return: IPL are returning 26 cents to shareholders. This comprises two components-
- 15.17 cents per share capital return that will be non-taxable
- 10.2 cents per share unfranked dividend.
- Why are they doing this?: In December IPL received the proceeds from selling an ammonia plant in Louisiana. The proceeds are being returned to shareholders in two parts: the above capital return and a $900 million on-market buyback.
Atlas saw this as a very smart transaction from IPL. They received US$1.675 billion for a plant that cost US$850M to build in 2016. Since then, IPL has generated $800M in profits from the plant and, as part of the sale has a 25-year offtake agreement for 180k tonnes of ammonia (enough to service their requirements with the ammonia to be delivered at cost!
- When do investors receive this cash? Our investors will receive payment into their bank accounts on 8th February.
CEP Strategy: IPL is Australia’s largest manufacturer of fertilisers, supplying around 50% of the nation’s fertilisers. Additionally, IPL is the world’s second-largest manufacturer of explosives that are used in mining, quarrying and construction. IPL takes advantage of lower US natural gas prices via their offtake agreement with an ammonia plant in Louisiana. IPL offers us exposure to a well-run global chemical company, benefiting from US shale gas, improving demand for Australian agricultural produce and a falling AUD. IPL is one of the last listed agriculture companies on the ASX, and HK-based activist investor Janchor now owns 9% of the company. IPL trades on a PE of 12x with a 7% yield and will see further price support from a very significant on-market buyback that will start shortly.
IPL is up 5% to $2.90 in early trade.
