Incitec is currently enjoying something of a “once-in-a-lifetime-boom” with fertiliser prices through the roof, a function of the broader macroeconomic environment that has driven all commodities, as well as the RUS-UKR war specifically.

That aside, it is worth noting that IPL has turned itself around, somewhat, over the years, with a much-improved track record of free cashflow generation (from an abysmal one just a half-decade or so ago).

Gearing is low, as befitting a cyclical company with little real control over price, or that of its operating environment (however much one might wish to think explosives have any duopoly like tendencies).

The market does not expect presently elevated prices to remain. Already Tampa spot has declined some 30% or so from its peak, which is what the below consensus forecasts generally depict. If prices surprise to the upside, IPL will (unsurprisingly) do well, by definition.

To a degree, it is a portfolio hedge. The company is trying to do things it thinks will crystallise value (remove a holding company discount, remove market-implied dis-synergies, operationally, or otherwise) but the main reason, a little like owning O&G at this stage, is in case the war drags on, and supply chains do not normalise, meaning that the food crisis (and the associated demand for fertilisers) continues.

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.

General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.

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