Morgans feels the announced demerger by Incitec Pivot somewhat overshadowed a record 1H earnings result. The record was attained via materially higher fertiliser prices, a lower Australian dollar, strong explosives volumes and a solid manufacturing performance.
The company intends to create two separately ASX-listed companies by demerging the Fertiliser (Incitec Pivot Fertilisers) and Explosives (Dyno Label) businesses.
The broker expects the Explosives company will be materially larger, trading on a higher multiple due to relatively more stable earnings.
Overall, Morgans still sees potential for further earnings upgrades if European gas prices remain high. The Add rating is retained, while the target falls to $4.45 from $4.56.
Sector: Materials.
Target price is $4.45.Current Price is $3.74. Difference: $0.71 – (brackets indicate current price is over target). If IPL meets the Morgans target it will return approximately 16% (excluding dividends, fees and charges – negative figures indicate an expected loss).
