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Incitec Pivot Announces 12% Rise in FY15 Profit

Incitec Pivot Announces 12% Rise in FY15 Profit
Nov 10, 2015 By Simon Herrmann Tags: IPL, RLE

Explosives and fertiliser producer and manufacturer Incitec Pivot (ASX:IPL) released its FY15 results today which showed a 12% increase in net profit to $398.6m.

Excluding one-off material items net profit after tax rose $42m or 12% against 2014. Operating cashflow increased 41% to $756.2m while revenue totalled $3.6bn (up 8.7% compared to pcp).

Incitec Pivot manufactures and distributes a range of fertilisers, explosives but provides also services to the agriculture and mining industries. As a low-cost supplier Incitec Pivot is the market leader in supplying plant nutrient products to Australia’s agricultural sector and is also the leading supplier of industrial explosives in North America.

Total dividends increased by 9% to 11.8 cents per share in line with the 10% lift in earnings per share. The payout ratio is 50% of NPAT. IPL’s price to earnings multiple is currently at ~16, slightly ahead of the market average.

IPL Managing Director and Chief Executive Officer James Fazzino said: “To have produced double-digit profit growth in this environment is a result of our successful strategy and our commitment to risk management and is a tribute to our people having delivered on the strategy through our Business Excellence program.”

Furthermore he emphasised on the challenging trading conditions due to “cyclical downturns and external influences” which have challenged the resources and agricultural industries.

FY16 Outlook

For FY16 Mr Fazzino has not provided a clear target goal, but he believes that the challenging environment will persist. However he states that the company is well prepared to balance these challenges through execution of its program which will result in improved productivity and manufacturing reliability. The Louisiana ammonia plant is on track to commence production in late 2016 while a lower AUD will continue to boost overseas revenue.

Investors were not impressed by IPL’s profit announcement which was broadly in line with expectations. IPL eased 1.3% in early trading to trade around 5 cents lower. IPL has gained ~19% year-to-date and is up ~30% in the past 12 months.

Letter of Intend with Real Energy Corporation (ASX:RLE)

In May this year Incitec Pivot has signed a letter of intent with Wise-owl pick Real Energy (ASX:RLE) which has cleared the path for negotiations with respect to finalising a gas sale agreement for the sale of gas from RLE’s Cooper Basin gas project. The agreement is a great step for RLE to commercialise its assets and fill the east coast gas void which is a result of significant gas demand in the area.

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Simon Herrmann Author: Simon Herrmann Nov 10, 2015

Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.

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