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Kalkine Daily 17/03/2015 + Incitec Pivot

Mar 17, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on Incitec Pivot (Expensive).

The S&P 500 was up by 26.81 points or 1.31% on Monday and closed at 2080.23 points. U.S. stocks rose Monday, rebounding from Friday’s losses as the dollar weakened against other currencies and European stocks gained. U.S. companies selling goods overseas face a conundrum. If they maintain the prices of their goods in U.S. dollars, those prices in the local currencies will become more expensive and foreign sales could fall.

Across the Atlantic, the pan-European FTSE Eurofirst 300 rose 1 per cent to its highest finish since late 2007 as the European Central Bank’s quantitative easing programme entered its second week. Netflix shares slid on Monday as HBO's decision to offer a standalone streaming service apart from traditional cable TV has heightened concerns, putting it in direct competition with Netflix for consumers who only subscribe to high-speed internet.

Health-care stocks in the S&P 500 rose the most, up 2.1%. Utilities stocks, known as bond proxies as they pay out big dividends, rose 1.6%. Energy stocks in the S&P 500 added 0.6%, posting the smallest sector gain as the price of oil came under pressure. Crude-oil futures slid 2.8% to $43.56 a barrel. Valeant Pharmaceuticals International Inc. has revised its agreed deal to buy Salix Pharmaceuticals Ltd., increasing the price to $173 a share, or about $11.1 billion. Endo International PLC subsequently withdrew the rival bid it proposed last week. Valeant shares rose 2.4%, Salix shares added 2% and those of Endo gained 2.3%.

Netflix Daily Chart (Source - Thomson Reuters)

S&P ASX 200 was down by 16.8 points or 0.3% on Monday and closed at 5797.7 points. Woodside Petroleum eased 2.2 per cent to $33.99 due to the fall in oil prices and after the company announced it had been forced to shut down its $15 billion Pluto liquefied natural gas plant in Western Australia. Pluto is Woodside's biggest single production asset and was the largest contributor to earnings last year, and the shutdown could affect production, profits and dividends, depending on how long it lasts.

BHP Billiton also continued to weigh, and was the biggest single detractor on the benchmark index as it fell 1.2 per cent lower to $29.40. Rio Tinto added 0.7 per cent to $57.70 and Fortescue added 0.5 per cent to $2.01, despite the price of iron ore at China's Qingdao port falling 0.5 per cent to $US57.66 per tonne. Commonwealth Bank of Australia closed 0.5 per cent higher at $91.79, NAB and Westpac Banking Corp added 0.5 per cent to $37.94 and $37.98 respectively, while ANZ Banking Group gained 0.3 per cent to $35.55. CSL eased 0.1 per cent to $91.81 after trading ex-dividend. Telstra fell 1 per cent to $6.14.

The following shares will trade ex-dividend today:
Auckland International Airport, Burson Group, Equity Trustees, Vita Life Sciences

WPL Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Incitec Pivot Video

Stock Of the Day - Incitec Pivot (Expensive)

Incitec Pivot (IPL), the explosives’ company and Australian fertiliser manufacturer and distributor, reported a 21% increase in its net profit after tax (NPAT) excluding individually material items of about $356.3 million in 2014, on the previous year. Under the business segment, Dyno Nobel Asia Pacific (DNAP) grew its Earnings Before Interest and Tax (EBIT) by 25% with support from the Moranbah ammonium nitrate plant. 10% surge was reported for the Dyno Nobel Americas (DNA) explosives’ EBIT with partial balancing from the adverse effect of lower fertiliser prices on DNA’s fertiliser business. The Australian Fertiliser business EBIT witnessed a rise of 9%. 33% of FY14 EBIT is being represented by the fertilizer business with Dyno 67%. Business Excellence (BEx) yielded a total of $62 million in sustainable benefits in 2014.

IPL stated that the financial leverage (measured as net debt to earnings before interest, tax, depreciation and amortization) was 2 times and interest cover was 9.1 times. The Company is not under any need of raising funds preceding the commissioning of the Louisiana plant given $1.5 billion of committed headroom available in its debt facilities. The full year dividend was 10.8cps indicating a 17% increase on the 2013 full year dividend of 9.2cps.

Business Earnings Profile (Source – Company Reports)

The recent update from Mosaic’s 4Q14 guidance appeared to illustrate positive viewpoint for IPL given the indication of strength in the global diammonium phosphate (DAP) market and fertilizer markets. Internal manufacturing performance shows some signs of improvement in last few months in view of on-track progress with Moranbah ammonia nitrate plant in Queensland reported to operate at >90% and Southern Cross Fertilisers (SCF) reported to operate at >900kt run-rate. Robust DAP price and better internal performance along with softness in AUD appear to be beneficial for IPL.

Louisiana Ammonia Nitrate Plant (Source – Company Reports)

In general, the Company has been trading at a thin discount as opposed to global fertiliser peers (including Mosaic, Potash, Yara and Agrium). IPL has illustrated a sturdier outlook for earnings growth from FY14. Louisiana expansion in FY17 also looks interesting. It has been noted that IPL has foreign exchange hedging in 1H15 with participation down to 82 cents. No hedging is being noted for 2H15 indicating exposure. The Company has illustrated hedging on Louisiana with regards to its US ammonia capex. With fall in Australian dollar (AUD), the US ammonia project is not expected to go up though the future earnings stream emanating from the US$ denominated Louisiana plant goes up with fall in AUD. The Company has about US$150m left to be spent before the July 2016 start up for the Louisiana capex spend. The project is 71% complete as reported on 28 February 2015. With regards to construction, the work related to piling, underground piping and cooling tower is complete. Ammonia tank was also reported to reach completion. Electrical and structural steel work is on track. The Company also conveyed that the operating metrics entail gas of about 32 mmbtu per metric tonne with cash cost (excluding gas) of about US$45/tonne. The potential is thus sensed from the Louisiana ammonia project which may help IPL undergo de-gearing and give a boost to the payout level and other efforts regarding capital management. The industry fundamentals are said to be strong given the fact that fertiliser and explosives continue to be an attractive investment with good growth outlook and long term ammonia demand growth of 2.2%.

US Ammonia and Gas Spread (Source – Company Reports)

IPL is nevertheless exposed to the risks related to weather extremities, and particularly, drought during planting period along with the ones related to fertiliser prices, explosives demand and prices, and AUD fluctuation. At Moranbah, low coal prices is becoming a challenge for customers. Then other factors to ponder over include weakness in the global mining markets, interim ammonium cost fluctuation, and increase in gas cost at Phosphate Hill (additional $50 million a year to be paid for gas over the next two years). The rate of growth in China has slowed down and together with the pressure in commodity price has in a way impacted IPL’s efforts in Asia.

IPL Daily Chart (Source - Thomson Reuters)

Accordingly, we believe that the stock is EXPENSIVE at the current price of $3.99 and would review it at a later date.

Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147

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