Shares in Incitec Pivot (ASX: IPL) were trading around 4% lower at the open after the ASX200 agricultural chemicals company released an uninspiring business update as a sneak peek at its half-year results in May.
While today’s update was devoid of major surprises, there was sufficient justification for RBC analysts to conclude an inferred downgrade to 1H FY25 earnings.
With fertiliser sales impacted by weather impacts, the broker believes there’s clearly a lot riding on its second half performance. This only heightens the risk of an earnings miss.
The company has already warned of a softer first half performance across the fertiliser and explosives segments. This is due to the latter - the Dyno Nobel business - enduring heavy rainfall in Queensland which impacts volumes in the Asia Pacific region.
Only 10% of fertiliser earnings in 1H
Ironically, when it comes to the fertiliser segment, it’s dry conditions in SA, Victoria, and southern NSW that have delayed the dispatch of key products.
However, cyclonic activity in Qld and northern NSW, plus ongoing sulphuric acid supply issues at Phosphate Hill have also negatively impacted operations.
As a result, the company now expects only 10% of its fertiliser earnings in 1H FY25.
Overall, the company expects a 1H-2H earnings split of around 35% and 65%, respectively.
According to RBC Capital Markets analysis, the updated 1H/2H earnings split for Dyno Nobel suggests a 13% downgrade to first-half consensus earnings, requiring an 8% uplift in 2H to reach the prior full-year estimate of $490 million.
For the fertilisers business, the shift suggests a 50% reduction in 1H earnings expectations. This would require a recovery of 13% in the second half to meet the earlier forecast of $118 million.
New segment reporting
Meanwhile, Incitec Pivot has announced a revised segment reporting structure.
Taking effect from its 1H results, the company is introducing a new business unit Dyno Nobel EMEA & LATAM (DNEL) that consolidates operations across Europe, Latin America, and Africa.
This includes explosives providers Titanobel (France), Nitromak (Turkey), regional LATAM growth initiatives, and South African joint ventures.
Underscoring this new segment approach are plans to expand globally through a capital-light approach, leveraging the Dyno Nobel brand and technology.
While historical financials from 2020 to 2024 have been restated to reflect the new structure, there's no change in the group's headline earnings or balance sheet.
The most pressing issue for investors is whether the new segment approach creates greater transparency into the all-important short-term outlook.
Around $1.5 million of the recent $3.25 million capital raise is expected to go toward debt reduction. The remaining $1.75 million to help accelerate production and sales of Sprintex’s new range of high-speed electric compressors.
Incitec Pivot’s market cap is $4.7 billion making it an ASX200 stock; the share price is down 10% over one year and 12% year to date.
The current share price of $2.57 marks a new 52-week low.
Multiple indicators confirm the stock's long-term bearish trend.
Consensus is Moderate Buy.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
