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Incitec Pivot boosts 1H dividend & profit: Fertiliser and ‘bang bang’ businesses to split

Mon 23 May 22, 10:56am (AEST)
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Key Points

  • Record first-half profit of $384m
  • Fully franked interim dividend of 10 cents per share
  • Return on invested capital (ROIC) improved during the year to 10.1%

After having climbed to multi-year highs in the past month, Incitec Pivot (ASX: IPL) has given the market more to smile about following the fertiliser giant’s announced record first-half profit of $384m this morning.

There was uncertainty over which way the market would open today.

Would the ASX take its lead from Wall St on Friday and drop, or would investors' spirits be buoyed by the prospects of a Labor government? The latter seems have been the case with the ASX200 and Incitec up 0.30% and 6.82% at the open respectively.

The market clearly liked the group's plans to split the company into two pieces.

Prices and currency

Incitec management attributes the record earnings of $568m, up from $110m on the previous period, to the company’s ability to capture the benefits of higher commodity prices and favourable currency movements - plus increased earnings from the underlying base businesses through customer and technology growth.

Today’s record result was accompanied by a mouth-watering interim dividend windfall for shareholders, with the group planning to pay fully franked interim dividend of 10 cents per share – compared to 1 cent previously, on July 5.

Supported by improved volumes and technology driven margin improvements Dyno Nobel Americas (DNA) reported earnings of $252m, up $220m on the previous period.

By comparison, solid growth in volumes across all markets, technology, and recovery in the international business saw Dyno Nobel Asia Pacific deliver earnings of $79m, up 13% on the previous period.

Meantime, Fertiliser earnings increased to $257m, up from $20m on the previous period due to solid distribution performance, despite pricing volatility, seasonal factors and ongoing investment in the distribution network.

Highlights of today’s first half result include:

  • Net Profit $384m for 1H22, an increase of $348m compared to $36m in 1H21

  • EPS 19.8 cents per share, up from 1.9 cents on the previous period

  • Net debt of $1.4bn and Net Debt/ EBITDA ratio of 1.0x, down from 2.1x on previous period

  • Return on invested capital improved during the year to 10.1%, up from 3.2% on the previous period

High demand

Commenting on today’s announcement, CEO Jeanne Johns told investors that the record first half result reflects the quality of the group’s two category leading businesses and the sharp focus on executing in a high demand, and highly disrupted market.

“This has enabled us to capture the very strong commodity price environment and foreign exchange tailwinds, as well as successfully manage inflationary pressures and supply chain disruptions. Our supply chain teams in both the Americas and Australia have done an outstanding job in responding to these challenges,” said Johns.

“The acquisition of Titanobel gives us additional expertise and people capability to serve select high quality markets and customers in Europe and Africa, with growth being driven by technology and a focus on future facing minerals.”

In addition to good progress on the group’s soil heath strategy, including the acquisition of Australian Bio Fert, Johns noted green ammonia partnerships with world class partners Fortescue Future Industries, Temasek and Keppel Infrastructure were continuing to progress.

The split

Incitec Pivot plans to implement a structural separation of its fertilisers and Dyno Nobel businesses to create two separately listed companies on the ASX.

Management notes the decision comes after a comprehensive review, with “robust underlying market conditions” supporting each business to move forward with strong balance sheets.

Based on preliminary estimates and analysis undertaken to date, one-off costs are expected to be between $80m and $105m and ongoing costs are expected to be about $25m to $35m annually.

Subject to required approvals and consents, the group is targeting completion of the proposed separation of the two businesses in the first half of 2023.

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Incitec Pivot share price: A three month snapshot.

What brokers think

Consensus on Incitec Pivot is Buy.

Based on Morningstar’s value of $3.57, the stocks appears, after today’s lift, to be a little overvalued.

Based on the seven brokers that cover Incitec Pivot (as reported on by FN Arena), the stock is currently trading with 12.4% upside to the target price of $4.20.

However, investors should note that this predates today’s result, and plans to create two separate entities on the ASX.

Watch for broker updates later this week.

Written By

Mark Story

Editor

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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