Fertiliser and chemical supplier Incitec Pivot Ltd (ASX: IPL) has slumped to a near two-month low on the back of a profit warning this morning.
The stock fell 2.6% to $3.71 in late morning trade after touching an intra-day low of $3.63 earlier when management warned that up to $6 million will be shaved off its net profit for 2014-15 due to an unexpected reduction in gas supply to its ammonium nitrate plant at Moranbah in central Queensland.
Gas is supplied by a joint venture company that is partly owned by AGL Energy Ltd (ASX: AGL) and Incitec has been told that gas supply will fall 10% to 20% short of targets and the restricted supply will extend into 2016.
This means that Incitec could see a further $22 million wiped off its net profit over the next 12 months if the gas issue persists.
This should be good news for rival Orica Ltd (ASX: ORI) as there is an oversupply issue for ammonium nitrate, which is used to make explosives, due to waning demand from the mining industry facing a downturn in commodity prices.
But investors aren't in a buying mood with shares in Orica falling just as hard as Incitec to $20.09. That may be little surprise given that earnings for the sector are under a cloud.
The thing is the lower production from Moranbah is not enough to change the fundamentals of the ammonium nitrate market.
Incitec's profit downgrade is also relatively immaterial as it would account for less than 2% of the profit the company is expected to post for the financial year ending in September 2015 and less than 5% of the following year's net profit.
However, the stock is unlikely to attract bargain hunters even after today's fall as it is on a 2014-15 forecast price-earnings of 16x.
That looks fully valued to me and I would say the same about Orica, although crop protection company Nufarm Limited (ASX: NUF) seems better placed given its good interim result and leverage to the growing agriculture industry.
But even then Nufarm isn't cheap enough to entice me to buy. If you are looking for better priced stocks with a strong outlook, sign up for free below to see what the experts at the Motley Fool have uncovered.
