Basic Materials

Orica soars on back of 25% revenue growth

Thu 12 May 22, 1:58pm (AEST)

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Key Points

  • Improved half-year underlying earnings of $245m, up 56%
  • Orica was one of the market’s top performers today
  • Capex for FY22 expected to be between $340m and $360m

After a run of poor results, Orica (ASX: ORI) finally gave the market something sweet to chew on after the world’s largest explosive maker posted an improved half-year underlying earnings (EBIT) of $245m, up 56%.

What isn’t included in these numbers is the contribution from Orica’s recently offloaded Minova business, which adds a further $14.7m to Orica’s first half earnings.

While much of the improved result is being attributed to a hefty commodity price surge in the half - leading to a corresponding uptick in demand for the company’s services in Australia, Indonesia and Latin America – management was also quick to flag rising input costs that have been impacting the business.

Overall, after booking an $80m impairment to its European business - following the company’s decision to exit Russia - and $33m of impairments against its business in Turkey, Orica booked a net loss of -$84.6m for the half.

Management notes higher revenue also reflects “price improvements in new contracts and contract renewals broadly offset impact from input cost increases,” and an improved product mix with more customer opting for premium products.

Despite the S&P/ASX 200 being down around -1.2% after lunch today, Orica was one of the market’s top performer’s, up 7.72%.

Highlights of the first half result included

  • 3c a share interim dividend, representing a payout ratio of 41% (payable 8 July 2022)

  • Revenue up 25% to $3.3bn for the half-year to the end of March

  • Underlying profits grew by two thirds to $129.2m, and was a 20% beat compared to consensus

  • Net debt of $1.6bn

  • Gearing at 38.3% (within the target range of 30 to 40%)

  • Ammonium nitrate (AN) volumes of 2.0m tonnes up 5%

Value drivers

CEO Sanjeev Gandhi believes Orica’s half year result reflects relentless efforts to improve performance, in line with the refreshed strategy outlined in November 2021.

“Focusing on three value drivers that align with Orica’s strengths, the refreshed strategy aims to deliver solutions and technology that drive productivity and innovation for customers and provide enduring value to shareholders and other stakeholders,” Gandhi noted.

“We maintained a disciplined approach to our balance sheet and capital management which resulted in our gearing ratio remaining within target range, despite the expected increase in trade working capital from rising input costs.”


Gandhi expects steady commodity growth, particularly in gold, copper and quarry and construction in the second half to continue to drive demand for products and services.

Despite the planned exit from our operations in Russia, the supply chain challenges associated with Russia-Ukraine, and the divestment of Minova, Gandhi expects the momentum in earnings from the underlying businesses to continue.

Management expects to maintain a focus on balance sheet and cash flow optimisation, with capex for FY22 expected to be between $340m and $360m.


Orica share price over 12 months.

What brokers think

Consensus on Orica is Hold.

Based on Morningstar’s value of $15.96, the stock appears to be fairly valued.

Based on the brokers that cover Orica (as reported on by FN Arena), the stock is currently trading with -6.1 downside to the target price of $15.72.

Following today’s first half result, Macquarie and Citi retain Neutral ratings on the stock with target prices of $14.92 and $15.00 respectively.

Macquarie notes that on a divisional basis, Australasia was a key part of an earnings beat versus the broker's forecast.

Despite the current macroeconomic worries, Citi expects the market to look upon today's results favourably.

Morgan Stanley, which is Overweight Orica, raises its target price to $17.40 from $17.10 due to likely benefits from higher ammonium nitrate prices in the long term.

Based on renewed spending intentions of miners, after a decade of stinginess, Intelligent Investor suspects a turnaround for Orica might be near.

The fund manager is particularly interested in Orica’s suite of wireless blasting technologies, which the business has continued investing in and advanced during the downturn.

If Orica can grow revenue to $6bn, matching what it made 10 years ago, and generates earnings margins of 10%, the funder manager expects to see earnings doubling to $600m.

But even if Orica does finally manage to grow revenue, lift margins, and double profits, Intelligent Investor believes the current share price is only mildly cheap at best.

Written By

Mark Story


Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. 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.

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