Incitech reported this morning. Overall, a very strong beat, with NPAT at ~$360m, vs consensus at $295m.

Robust commodity prices, and a 2H COVID related recovery drove the result. IPL benefits on the explosives side from strong iron ore, gold, copper prices, which incentivise extraction, and on the fertiliser side from high urea, ammonia, DAP prices.


Cashflows were very strong, reflecting the “tale of two halves”.

The balance sheet has improved materially…

With gearing down to much more conservative levels, and moving to 1.1x net debt to EBITDA, vs 1.4x on the pcp.

Which is what you want from high commodity prices. Use the windfall to get the balance sheet set for whatever comes next. It is unlikely that fertilisers moon in perpetuity, and more than for any other commodity caught up in the bottleneck-meets-COVID-resurgent-demand story.

Coal and climate

As with Orica, there’s been an ESG overhang on the share price, and IPL are going to good lengths to discuss their climate response (fertilisers are energy intensive and come with lots of emissions).

On the coal side, they’ve got ~ a decade to replace 18% of revenue in the America’s explosives business, which is readily achievable, and in the Asia Pacific (AP, below) business the majority of it is metallurgical coal, which we think has a longer, more sustainable road ahead of it, compared to thermal.


The Louisiana based Waggaman ammonium nitrate plant should, and hopefully will, enjoy very high returns if they can keep it up and running, given these high prices. Mgmt commentary in the earnings call spent considerable time talking about the positive operational performance since the April-May outages.

Those unexpected shutdowns, and precautionary closures associated with Hurricane, kept production down, which partially explains why IPL hasn’t re-rated as strongly as the underlying commodity prices.

The other explanation is that the market simply doesn’t believe the commodity prices will remain high enough to meaningfully impact IPL’s financial fortunes. That’s probably a reasonable enough view, and in our view commodity prices will indeed unwind, as supply chain bottlenecks are overcome.

However, based our calculations, the embedded earnings trajectory required to produce a market like rate of return are modest enough. Earnings really only need to recover to 2018 levels, over the next decade, to hit that target, which raises the likelihood of surprising to the upside.

Beyond the recovery in explosives related production (as COVID impacts fade) the growth drivers of population growth (more mouths to feed, more need for higher yield crops, more need for fertilisers to grow the food) should help IPL reach those targets, and that’s before exploring possibilities such as green ammonia production (a partnership with Fortescue Future Industries).


Valuations, remain at relatively low levels, on a range of frames, and importantly, on asset based multiples, which account for any prospective over-earning, suggesting IPL is attractively priced.

Overall, happy holders in our direct equity portfolios.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.

Please note that past performance is not a reliable indicator of future performance.

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