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Orica consolidates service offering though Axis Mining Technology acquisition: $650m equity injection

Wed 03 Aug 22, 11:10am (AEST)
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Key Points

  • Orica hit a new 52-week high yesterday
  • Orica is buying Axis Mining Technology for $260m
  • The company is making a $650m institutional share placement

Investors who were somewhat mystified at Orica (ASX: ORI) hitting a new 52-week high yesterday, seemingly on no news, can today connect the dots following two major announcements this morning.

The large cap explosives company entered a trading halt this morning (resumes trading tomorrow) after announcing plans to buy Perth-based unlisted digital orebody intelligence business, Axis Mining Technology for $260m and a deferred earn-out payment up to a maximum of $90m.

The offer implies an acquisition multiple of 11.8x FY22 earnings (excluding pro forma synergies).

To fund the Axis acquisition and ongoing working capital requirements arising as a result of global supply chain dislocations, Orica will be making an underwritten $650m institutional share placement at $16 a share.

Orica also plans to offer a non-underwritten share purchase plan (SPP) capped at $75m to shareholders.

What exactly does Axis do?

To the uninitiated, Axis designs, manufactures and distributes specialised navigation instrumentation, data and drilling solutions for the mining industry.

Products are manufactured and assembled at Axis’ UK and Australian facilities, and distributed to over 30 countries, with earnings primarily generated through recurring product rental.

Mine-to-mill solutions provider

Through the Axis acquisition, Orica expects to become the industry’s first integrated, end-to-end, mine-to-mill solutions provider.

“This strategic acquisition further strengthens our existing Digital Solutions vertical and expands our Orebody Intelligence portfolio upstream,” noted CEO Sanjeev Gandhi.

“The integration of Axis’ technology and expertise will accelerate our ability to support our customer’s digital transformation efforts around the world.”

Orica’s rationale for acquiring Axis also include:

  • Axis is a high-growth and high-margin business exposed to favourable long-term industry trends with primary exposure to gold and copper.

  • The acquisition of Axis will enable Orica to create a leading, full-service Orebody Intelligence business with a comprehensive product portfolio and differentiated market offering.

  • Strengthens Orica’s position across the mining value chain.

  • Compelling growth opportunities for both businesses, through combined global network and capabilities.

EPS accretive

Management advised investors that both acquisition and placement are expected to be EPS accretive from the first full year of ownership.

The return on net assets (RONA) contribution from the acquisition is also expected to be in line with Orica’s stated guidance of 10-12%.

While Orica’s earnings outlook for FY22 remain unchanged from the FY22 half year results announcement, the company expects continued inflationary pressures and higher energy costs, as well as supply chain dislocations, to remain ongoing challenges.

image
Orica share price over one year.

 

What brokers think

Orica’s share price has been on an upward trajectory for some time and is currently up 25.6% year-to-date in 2022 and around 9% over the past month.

Consensus on Orica is Moderate Buy.

Based on Morningstar’s value of $16.48 the stock appears to be fair valued.

Based on the seven brokers that cover Orica (as reported on by FN Arena) the stock is currently trading with 1.3% upside to the target price of $17.41.

Expect broker updates to follow today’s key announcements.

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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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