The shock resignation of Orica Ltd's (ASX: ORI) chief executive Ian Smith couldn't come at a worse time for the explosives maker. Shares in Orica tumbled 3.6% to a two-and-a-half month low of $18.51 this morning on the news with the Australian Financial Review reporting that Smith was asked to leave because of bullying.
The stock was already under pressure since I wrote two days ago about the dim outlook for ammonium nitrate, which is used in making explosives.
The change in management will prove to be a further unneeded distraction for the company at a time when there's growing concern about the oversupply of ammonium nitrate due to weak demand from mining clients and a ramp up in production of the chemical.
Orica is facing the same operating challenges as iron ore producers such as Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO).
I had urged readers to avoid the stock and I continue to rate the stock a sell even after today's fall as I suspect Orica will remain out of favour over the short term at least. The fact is there isn't an obvious catalyst for Orica on the horizon and the stock, while not expensive at these levels, is still not cheap enough to attract bargain hunters.
Further, I think more brokers will be following the lead of Morgan Stanley and RBC Capital in downgrading their 2014-15 and 2015-16 forecasts for Orica and you don't want to be holding the stock as that happens.
Smith had spent just three years running Orica and the company said it is looking for a new leader with a "different management style".The company said Smith will leave once it's found his replacement, without providing a timeframe.
Orica is trading on a consensus 2014-15 price-earnings multiple of around 12 times and a yield of around 5%. But as I mentioned, the P/E is likely to rise as brokers cut their earnings projections.