Morningstar

Morningstar, Inc.

Equity Bottom-Up

We make no change to our AUD 16.50 fair value estimate for no-moat Orica, still anticipating material margin expansion due to mix shift and cost efficiencies. First-half fiscal 2019 EBITDA expansion to 15.4% from 14.9% in the previous corresponding period highlights this potential, and we expect there is more to come. Underlying first-half fiscal 2019 NPAT increased 35% to AUD 167 million, though below our AUD 197 million forecast. Expected ammonium nitrate, or AN, price appreciation was a key…

Orica is a leading provider of explosives to the global mining industry. It also provides underground mining and tunneling products, but this business has struggled for an extended period. Strong technological knowledge, strict regulatory requirements, global scale, and a duopoly position in the key Australian explosives market are competitive strengths. Demand for resources drives fundamentals, and growth is linked to mining volumes. Cost-reduction initiatives from mining customers will feature…

We make no change to our AUD 16.50 fair value estimate for no-moat Orica. There are no changes to long-term assumptions, nor to our AUD 418 million underlying fiscal 2019 earnings forecast. This anticipates continued ammonium nitrate, or AN, volume growth from Australia Pacific, with Bontang plant expansion due to stronger demand, and comes despite well publicised delays from the Burrup plant to first-half 2020. North American and EMEA volumes are still anticipated to grow into fiscal 2019 with…

We make no change to our AUD 16.50 fair value estimate for no-moat Orica. However, we have reined-in our fiscal 2019 EPS forecast to AUD 1.11 from AUD 1.37 previously. We now expect full recovery from fiscal 2018's maintenance and weather-impacted lows to take slightly longer than previously allowed for. Orica's difficulties have not just been maintenance and weather one-offs. The company has reported reduced underlying EPS in each of the last seven fiscal years to 2017, and the first half of…

Our fair value estimate for no-moat Orica remains at AUD 16.50. That’s despite first-half fiscal 2018 underlying NPAT falling 37% to AUD 124 million, 40% below our previous AUD 205 million target. The shares plunged 7.2% to AUD 18.85 intraday on the news. We think there will be operational improvement and still forecast high-single-digit five-year EBITDA CAGR to near AUD 1.4 billion by fiscal 2022, 60% above fiscal 2017’s AUD 883 million.
Analyst: Mark Taylor

Australia

Orica Limited is a diversified manufacturing company.  The Company produces industrial and specialty chemicals, polyethylene, surface coatings for vehicles, food and beverage flavoring and fragrances, packaging and appliances. The Company also supplies explosive and blasting services to the mining, quarrying and construction industries.

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