Incitec Pivot Ltd (ASX: IPL)

Loss of the Roy Hill contract will affect the profit:Incitec Pivot Ltd (ASX: IPL) stock is getting hammered with the decision by Roy Hill Iron Ore of not proceeding with its contract renew for explosives and services after expiry due in February 2018. The loss of the Roy Hill contract is currently estimated to have an impact on Net Profit After Tax (NPAT) from FY18 through to FY22 with maximum impact from the loss of the contract to be seen in 2020, and thereafter a minimal impact is expected beyond FY22. Particularly, the loss is estimated to be of approximately $5m in FY18, $16m in FY19, $22m in FY20, $18m in FY21, and $20m in FY22. It will be interesting to see if the company can put some new supply agreements in place to mitigate the anticipated losses.

Moreover, last month the company said that it would lose a supply contract from miner BHP Billiton in November 2019, and projected a reduction of $10 million to its net profit for fiscal 2020 and $25 million for fiscal 2021. The new Burrup facility by Orica in Western Australia has already tightened the prospects for the group while IPL still aims to focus on its organic growth opportunities. It is also being indicated that Orica has been the beneficiary of the lost contracts from Roy Hill and is zooming up in giving tough competition to IPL.

With these impacts, IPL stock that rose 5.46% in last three months as on January 11, 2018, is seen slipping by 4.15% on January 12, 2018. It will be better to keep away from this stock till the time some boost from any positive catalysts or stability comes into picture. We believe investors can book profits and “Sell” the stock at the current price of $3.51

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