Incitec Pivot (IPL) Today, the global fertiliser and explosives manufacturer reported their half-year 2024 results, which were above market expectations and full of capital management initiatives, but as expected, a messy result. Overall a positive result. The HNW  Portfolios hold a 3% weighting to IPL.

Key Points

  • Solid Underlying Earnings: Earnings were up +18% to $249 million, driven primarily by a 59% increase in Dyno Nobels Asia and Pacific regions, which saw strong contracting and customer wins. Dyno Nobels American operation saw a 22% increase in earnings following higher manufacturing reliability. The fertiliser earnings were down 77% as IPL increased inventory for the business heading into the Australian winter cropping season.
  • Fertilizer Business Sale: IPL is currently in talks with Pupuk Kalimantan Timur (PKT) to sell their Fertiliser business, with the two businesses in advanced discussions but still would require Foreign Investment Review Board approval once a sale price is agreed upon.
  • Share Buy-Backs: IPL has continued to keep the planned share buyback of $900 million on hold until the sale of its fertiliser business is complete. The buyback will support the share price and reduce the number of shares outstanding by 16%.
  • Dividend: IPL management announced a dividend of 4.3 cents per share for the half on top of the 10.2 cents per share returned to shareholders from the Wagaman plant sale in February.
  • Strong Outlook: IPL has a solid outlook for FY24 with 80%+ of explosive contracts having already been renegotiated for the year, with profits from the Fertiliser sale to be returned to shareholders with some used to improve Dyno Nobels long-term operations.

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 14x with a 7% yield. The company’s share price will see significant support over the coming year due to the size of the on-market buyback.

IPL finished up +5.3% to $2.97, what was a good result long term, the company will re-rate as a pure explosives company.