Incitec Pivot Ltd
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IPL Details
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Downgraded by investment bankers: Incitec Pivot Ltd (ASX: IPL) stock fell about 9% on July 14, 2016. Two investment banks, Credit Suisse and UBS have downgraded the IPL target share price at the back of tight ammonia and phosphate market as anticipated going-forward. Credit Suisse expects the supply to surpass demand in 2017 and 2018 hitting IPL’s margins. UBS has downgraded its expectation of a buy-back to $200 million on conservative estimates and revised the price targets on the group. On the other hand, IPL is constructing an ammonia production facility in Louisiana, U.S., which is expected to come online in the third quarter 2016 and would generate earnings (EBITDA) of US$98 million in the 2017 financial year, targeting an internal rate of return of 15%. Thus, the drop seems to be related to market sentiment but IPL’s balance sheet and long-term capital management strategy may help the company sail through tough times.
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Recommendation: We give a “Hold” recommendation on the stock at the current price of $2.85
Bulletproof Group Ltd
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BPF Details
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Softness in Second Half of 2016: Bulletproof Group Ltd (ASX: BPF) stock fell 13.75% on July 14, 2016 after the company gave a weak FY 16 guidance and trade update. As per BPF, FY16 revenue growth would be up 67% at $47m in line with market expectations as compared with corresponding period of 2015. In addition, the underlying EBITDA is expected to be in the range of $4.6m - $4.7m, up from $4.2m in FY15 while the underlying EBIT is expected to be $600k - $700k, down from $850k in FY15. However, in the second half 2016, project revenues were flat owing to weaker than usual seasonal behavior and some customer-side project delays, particularly in the newly-acquired New Zealand business. During the period of lower activity and revenue, utilization levels of the professional services engineering team declined, which impacted the underlying profits. Though there are some significant enterprise customer wins with project based revenue starting to increase into FY17.
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Recommendation: We give a “Hold” recommendation on the stock at the current price of $0.345
Fortescue Metals Group Limited
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FMG Details
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Speculation regarding prices and production: Fortescue Metals Group Limited (ASX: FMG) stock fell 4.1% on July 14, 2016 after rising about 15% in the last five days alone (as at July 13, 2016) owing to market speculations about iron-ore prices that may not remain strong for long. Meanwhile, FMG said that the shipments were ahead of target due to the unseasonal mild weather experienced during the March quarter and potential upside to the full year guidance is subject to the impact of weather during the June quarter. Moreover, Fortescue advised that 169.4mt would now be shipped for FY16 better than previous guidance of 165mt provided issued in February. Meanwhile, FMG stock has already risen 180.25% (as on July 13, 2016) in the last six months, driven by the recovering commodity prices.
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Recommendation: We maintain our “Hold” recommendation on the stock at the current price of $4.22
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Cost guidance for FY16 (Source: Company Reports)
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