IPL
The IPL result is out.
The headline NPAT is marginally ahead of consensus, but the buyback and more shareholder friendly language reflect the communication issues it’s had with the market (difference of opinion on how to unlock value).
In general, there’s a lot to like about any slide that looks like this.
And they’ve included an excellent graph on plant reliability. For many years IPL has been “accident prone”, and the improvement highlighted below is a very welcome one, especially given how high current commodity prices are (and thus the losses that result from unexpected downtime/outages).
Performance-wise (partly) the issue for IPL has been a) the market is looking through the boom and b) not valuing IPL at a like-for-like multiple to peers (e.g. ORI in explosives, nor tracking the big fertiliser players).
Overall, we see IPL as one of the few favourably exposed (a supportive price backdrop to what they sell) commodity producers that hasn’t run hard, and is optically cheap on that basis, with a structurally sound thematic (feed-the-world, fertilisers, build-the-world, commodity extraction) with a good balance sheet and solid cashflows.
We’d thought someone might just acquire IPL, given they are ultimately a pretty critical input to supply chains everywhere, and this hasn’t happened.
But, we will take a buyback and otherwise strong capital returns to shareholders as a consolation prize.
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