Incitec/IPL

IPL (big explosives manufactuer) was out yesterday, comfortably ahead of consensus, stock up some +5% through the day.

There’s a lot of moving parts. Waggaman (ammonium nitrate plant) was effectively sold last year, which accounts for the drop in earnings from Dyno Nobel America’s…

And within Dyno Nobel (DN) Asia Pac the fertilisers business is normalising from the 2021/22 froth/energy-scare in urea/DAP/ammonia markets. That fertilisers business is also on the verge of being sold, which will leave IPL as a pure play explosives company.

The company knows this makes for messy/difficult prior period comparisons, and so they’ve tried to show the “rebased” business below, in which ex Waggaman EBIT growth looks good. DNAP up ~+60%, DNA up 22%.

If the fertilisers sale goes through IPL will buy back some $900m of shares, which at the current price of ~$3/share will be very earnings accretive, and, given strong commodity prices, we can expect positive tailwinds to the explosives business for some time to come.

And so, IPL will have essentially transformed. It would be very lowly geared (it already is) will materially higher returns in a much more stable sector (fertilisers is horribly procyclical).

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