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What Caused Incitec Pivot’s 14% Decline This Morning?

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Incitec Pivot’s (ASX: IPL) share price is off 14% this morning, as investors shared their disappointment about the company’s revised FY19 earnings guidance. The company previously issued a downgrade on the back of commodity price changes and unfavourable foreign exchange movements, which resulted in EBIT forecasts being downgraded from $370-415m to $321-366m. While the market could forgive this downgrade since it was down to temporary factors outside the control of management, they have recently downgraded forecasts again and are now projecting that the business will deliver EBIT in the range of $285-295m. Since management teams would almost invariably prefer to blame downgrades on external factors instead of a deterioration in the underlying business, which they have more control over, investors are generally suspicious when several downgrades come simultaneously.

Incitec Pivot - Report
Incitec Pivot had a large downgrade this morning (Credit: Kalkine Media)

Incitec Pivot manufactures and sells explosives, fertilisers and industrial chemicals. The main parts of the business are Incitec Pivot Fertilisers, Southern Cross International, Fertilisers Elimination, Dyno Nobel Asia Pacific and Asia Pacific Eliminations. The company is relatively innovative, being at the cutting edge of initiation systems facilities and deploying those technologies throughout Incitec Pivot’s global operations.

The company also announced that it is conducting a strategic review of the APAC fertilisers segment of its business. The company is the only producer of nitrogen fertilisers on Australia’s east coast, which gives the business a degree of monopoly pricing power. This has so far not been able to result in meaningful margin expansion, although the market is projecting margins to improve substantially after this year’s results. Nevertheless, much of this projected improvement is due to the favourable developments in the commodities space, as opposed to fundamental improvements in IPL’s underlying business. As such, management may need to deliver some more positive results or meaningful change out of the review to turn investor sentiment towards the stock.




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.


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