Does 2022 signal a turning point for Orica?

Thu 03 Feb 22, 12:42pm (AEST)

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Key Points

  • Explosive prices have risen sharply back over pre-covid levels
  • Goldman Sachs puts a Buy on Orica
  • Investments in tech & software products could represent 25%+ of future profits

According to the standard principles of technical analysis, Trading Central suggests bullish signals indicate that Orica’s (ASX: ORI) share price may rise from a close of $14.50 to a range of $15.30 - $15.50 within the next 33 days.

Due to covid disruptions, geopolitical issues, and other external and internal factors, 2021 was a tough year for the multinational explosives company.

The share price was down 8% at year’s end and experienced further softening at the start of 2022.

While the consensus is a Hold on Orica, yesterday Goldman Sachs put a Buy rating on the stock having concluded there could be a turnaround in the supply cycle that has clearly plagued the company in recent times.

In September, the company announced individually significant items impacting the result by $382m after tax, which resulted in a statutory net loss after tax -$174m, compared to a net profit after tax (NPAT) of $82m in the 2020 financial year.

More positive outlook

With interest rates rising and trading conditions starting to normalise, Anton Tagliaferro of Investors Mutual suspects investors who favoured growth stocks over the past 18 months, may have a new appreciation for stocks [like Orica] with strong underlying core earnings and real cash flows.

While falling explosive volumes/prices and low plant utilisation significantly impacted Orica’s margins and profits, Tagliaferro believes the future outlook is decidedly more positive.

The fund manager believes substantially higher commodity prices and recovering mining volumes in 2022, as covid disruptions dissipate, bode well for Orica going forward.

Tagliaferro also notes that explosive prices have risen sharply back over pre-covid levels, and sees substantial upside to the company’s cashflows, dividends and share price.

He also expects the investments the company has made in its technology and software products to return in spades, and could potentially represent more than a quarter of the company’s profit in three years’ time.

What other brokers think

Based on the seven brokers covering Orica (as reported on by FN Arena) the stock is currently trading at an 8.2% upside to the target price of $15.93.

The two last broker updates on the stock were done mid-December 2021.

While Macquarie has a Neutral rating and a target price of $14.92, Credit Suisse retained an Outperform rating, and the target price decreased to $17.10 from $17.26.

Orica works to a 30 September financial year and is due to report its first half FY22 result on 12 May 2022.

The stock was trading 1.31% higher at lunch time today.

Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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