Incitec Pivot Limited  

IPL Details

An Update on Range Pilot: Incitec Pivot Limited (ASX: IPL) is engaged in manufacturing and distributing industrial explosives, industrial chemicals and fertilizers, and the provision of related services. The company segments include the Asia Pacific, Americas and Corporate. IPL has updated regarding its operations at Range Gas Project, Queensland on 11 June 2021. IPL has announced that its Range Pilot project has started production. Moreover, IPL has notified about three wells been drilled with installation and commissioning of surface facilities. The Range Gas Project contains an estimated 270PJ of 2C Contingent Gas Resource (IPL share 135 PJ). 

1HFY21 Financial Highlights: IPL has registered a decline in revenue to $1,724.1mn in 1HFY21 against $1,847.9mn in 1HFY20. It has reported a decline in profit to $36.4mn in 1HFY21 against $64.6mn in 1HFY20. Moreover, IPL has witnessed a decline in cash balance to $124mn as on 31 March 2021 against $554.6mn as on 30 September 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Off-take Agreement to Contribute to Revenues: IPL’s subsidiary, Incitec Fertilisers Pty Ltd (IPF) has entered into an off-take agreement for 20 years with Perdaman Chemicals and Fertilisers Pty Ltd (Perdaman). IPL is obliged to taking up to 2.3mn tonnes per annum of granular urea fertilizer from Perdaman’s proposed urea plant at Karratha in Western Australia. 

Key Risks: The company holds interest-bearing liabilities. Therefore, any severe changes in interest rates may impact the financials of the company. In addition, the company is exposed to foreign exchange risk. Therefore, any adverse movement in foreign exchange currencies may impact profitability of the company.  

Outlook: With the commencement of Range Pilot project, IPL to benefit from an expected shortfall of gas supply in eastern Australia by 2024.  

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of IPL gave a return of ~+6.95% in the last one month and a return of ~-16.04% in the last three months. The current market capitalization of IPL stands at ~$4.71bn as of 25 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.807-~$2.980. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms). We believe that the stock can trade at a slight discount as compared to its peer median EV/Sales (NTM trading multiple), considering the company has posted a decline in revenue and profit in 1HFY21. For this purpose, we have taken peers Salt Lake Potash Ltd (ASX: SO4), Scidev Ltd (ASX: SDV), Secos Group Ltd (ASX: SES) to name a few. Considering the production started from Range Pilot Project, off-take agreement with Perdaman, the current trading levels, and valuation, we recommend a “Buy” rating on the stock at the current market price of $2.460, up by ~1.234% as on 25 June 2021. 

IPL Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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