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Orica gives shareholders a reason to smile

After posting a 5.3% rise in first-half profit, Orica’s (ASX: ORI) shareholders should be impressed with the company’s performance.

Orica is a manufacturer and supplier of industrial and specialty chemicals, commercial explosives and mining chemicals through over 50 countries. It remains a strong non-volatile Australian business with a healthy trend line pointing upwards for the past 10 years.

Despite continuing weakness in key markets, net profit climbed to $266.8 million in the six months to March 31, after the previous corresponding period’s results were down $90 million from the closure of the Kooragang Island ammonia and ammonium nitrate plants.

Recently, poor gold prices have weighed on producers like Newcrest Mining (ASX: NCM) but Orica was helped by higher prices for sodium cyanide, which induces gold metal to oxidize and dissolve in the presence of air and water, making the precious metal easier to extract. However, the company said in its report that “significant weaknesses in demand and pricing for ground support and services” will need to be realised in the next few years.

The market has reacted to the news sending the share price up 1.62% at close yesterday. In the medium term this company may fall slightly, unless it can deliver on its strategy to reduce debt and raise profits. Since the company is relatively cheap, at a P/E ratio of only 11.28, it could see some short term growth.

However since 65.8% of its revenue is derived from mining related services and 34.9% of its total revenue comes from Australia, the slowing resources sector could take a toll on Orica’s revenue and share price.

Foolish takeaway

Orica is an exciting company that is part of the S&P/ASX 200  (ASX: XJO)(^AXJO). It could be considered a good long-term growth stock and definitely deserves a spot on your watch list. As Australian ‘blue chip’ companies become more expensive, investors will soon start considering what Orica has to offer.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.

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