Incitec Pivot (IPL) Today, the global fertiliser and explosives manufacturer, reported their full year 2023 results, which were in line with expectations and full of capital management initiatives. The HNW Equity & Income Portfolios hold a 3% weighting to IPL.
- Solid Profits: profit of $582 million, their second highest ever, though down from FY22, which benefited from surging fertiliser and ammonia prices due to the Russian invasion of Ukraine. Explosives were the highlight, with solid results in Asia Pac and the USA along with record production in Australia. Fertiliser was weaker as prices trended down after the spike in 2022, with an unplanned outage at the Phosphate Hill manufacturing plant and higher gas costs.
- Share Buybacks: IPL has delayed the $400M planned on-market share buyback announced in May due to the potential sale of fertilisers; this buyback will go ahead and be augmented by an additional $500 on-market share buyback to be completed over the next year. This $900M buyback will support the share price and reduce the number of shares outstanding by 16%
- Capital Return: In addition to the above buyback, IPL is looking to conduct a ~ 30-cent return of capital in February 2024.
- Balance Sheet solid: net debt was a touch higher due to some growth projects, but at 1.2x EBITDA with an interest cover of 10x, the company is in a healthy position, particularly with a huge A$1.3 billion cheque coming in from CF Industries next month for the sale of their Waggaman plant in Louisiana.
- Strong Outlook: Solid outlook for FY24 for explosives expected to grow by mid to high single digits due to repricing of existing contracts and new contracts won, such as Fortescue’s Iron Bridge Magnetite Project. Fertiliser earnings are also expected to be higher with full production from Phosphate Hill and a $45M decrease in gas costs.
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 new 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 13x with a 6% yield. The company’s share price will see significant support over the coming year due to the size of the on-market buyback.
IPL gained 1.4% to finish at $2.93.