Incitec Pivot (IPL) Today, the global fertiliser and explosives manufacturer, provided an update on its fertiliser business sale and capital management plan. The HNW Growth and Income Portfolios hold a 3% weighting to IPL.

Key Points:

  • Conclusion of Sale Process (for now): IPL announced today that it is ceasing negotiations with PT Pupuk Kalimantan Timur (PKT) for the sale of its fertiliser business due to the process most likely being blocked by the Foreign Investments Review Board (FIRB). Atlas thought a sale to an Indonesian SOE would be challenging, with farmers concerned that phosphate fertilisers from Australia’s only East Coast phosphate manufacturing could be diverted to Indonesia in the event of shortages.
  • Beginning of Share Buyback: The sale has been placed on hold for now, so IPL will begin its $900 million on-market share buyback, which, at current prices, would be 16% of outstanding stock.
  • Businesses in line with Guidance: Both Dyno Nobel and Incitec Fertilisers have performed well over the last three months since their 1H result.
  • Our Take: While unfortunate that the sale could not be reached, it was unlikely that the FIRB would let a state-owned Indonesian company buy a business that supplies 50% of Australia’s phos fertiliser. By announcing that they are not in discussions with anyone about buying the fertiliser business, IPL can begin their share buyback and return capital to investors.

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 used in mining, quarrying, and construction. IPL takes advantage of lower US natural gas prices via their new ammonia plant in Louisiana. IPL offers us exposure to a well-run global chemical company that benefits 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 14x with a 3.5% yield. The company’s share price will see significant support over the coming year due to the size of the on-market buyback, one of the largest as a % of the register ever. IPL has been quite generous to investors so far in 2024, paying 30 cents per share in a combination of capital returns and dividends.

IPL finished unchanged at $2.90, which was not a bad outcome after the stock was down by 5% at the open.