On Wednesday morning, Incitec Pivot Ltd (ASX: IPL) updated the market on the operation of its world-class ammonia plant in Louisiana, United States.
Wednesday's announcement revealed Incitec's plant in Waggaman, Louisiana, is operating at 73% uptime relative to its 800,000 metric tonne per annum capacity. This has enabled Incitec to produce over 140,000 tonnes of ammonia since the plant was transferred to Incitec on 19 October 2016.
Whilst the current uptime is less than the forecast average uptime of 80% over the first 12 months, the announcement reiterated that Incitec remains on track to move to 100% uptime towards the end of this year.
Furthermore, the big positive from Wednesday's update is that Incitec will receive delay damages from the contractor to the tune of US$35.1 million.
These achievements are why I think Incitec is worth a closer look.
Delay damages
Incitec revealed that as part of finalising its contractual arrangements, the construction contractor agreed to pay damages of US$35.1 million for delay in handover of the plant under the lump sum turnkey construction contract.
Incitec will classify the one-off payment as income for the current year, implying that earnings (including individually material items) should be up on 2016 numbers. This is a favourable outcome for management, given the plant was constructed below its US$850 million budget, and speaks volumes of its leadership ability.
Analyst forecasts
Analysts at Macquarie Group Ltd (ASX: MQG) share my sentiment, revealing in a December research note that Incitec is well positioned to outperform the market.
The investment bank revealed that higher oil prices should support fertiliser prices moving forward, benefitting low cost producers like Incitec. Accordingly, Macquarie analysts remain positive on the stock, slapping a $3.88 12-month price target on the shares as a result of the increased output the Waggaman plant should provide and management's proven ability to control costs.
Similarly, Deutsche Bank rates Incitec a buy with a 12-month price target of $3.95 a share. The German investment bank cites industry consolidation as a key driver for further price gains, given marginal cost producers are expected to decrease. Deutsche Bank therefore contends that the ammonia market should tighten, benefitting high quality producers like Incitec and Orica Ltd (ASX: ORI).
Should you buy?
Whilst analysts' ratings should not be solely relied upon as a basis for investment, the telling trait that makes Incitec a solid stock to own is its management's ability to deliver.
Although Wednesday's announcement indicates that the plant is running below forecast uptime levels, management reiterated that its previous target of 80% average uptime should be achieved by year end.
Moreover, the successful negotiations for delay damages represents a favourable outcome for shareholders, adding to management's prior achievement of delivering a facility that is in the top 2% of projects globally.
Foolish takeaway
In my view, Incitec's pullback following Wednesday's announcement appears to be unwarranted and may be driven by the broader S&P/ASX 200 Index (ASX: XJO) sell-off.
Given Incitec's management has a proven track record of delivering on time, and within budget, I'd expect any hiccups to be short-lived.
As such, I believe investors should take the pullback as an opportunity to buy Incitec shares given the broader industry themes at play.
