Incitec Pivot Ltd shares surge higher on results release

The Incitec Pivot Ltd (ASX: IPL) share price has had a solid start to the day and finds itself up 5% to $3.94 in late morning trade following the release of its full-year results.

Here are key highlights from the release:

  • Revenue increased 3.6% year-on-year to $3,473 million.
  • EBITDA excluding individually material items (IMI) rose 15.2% to $774.5 million.
  • Net profit after tax excluding IMIs increased 8% to $318.7 million.
  • Earnings per share of 18.9 cents.
  • Full-year unfranked dividend of 8 cents per share.
  • Outlook: Positive outlook for Explosives and Industrial Chemicals segments.

Overall I thought this was a good result from Incitec Pivot.

The solid bottom line growth was largely down to the performance of its Industrial Chemicals and Explosives segments.

The company’s Industrial Chemicals segment posted an 83.1% increase in earnings before interest and tax (EBIT) due partly to the benefits of its Waggaman ammonia plant which opened in October 2016. Elsewhere, its Explosives segment saw EBIT rise 9.2% to $344.4 million and its Fertilisers segment posted a 1.9% decline in EBIT to $80.4 million.

Ultimately this led to its Group EBIT margin widening 160 basis points to 14.4%.

Should you invest?

Although this was a good result, I still wouldn’t be a buyer of its shares on valuation grounds.

Based on this result Incitec Pivot’s shares are trading at over 20x earnings today. I think this is quite expensive for its current growth profile and would prefer to see its shares trading down toward the 15x to 16x earnings level.

In light of this, I would class it as a hold and suggest investors consider other materials sector shares such as Boral Limited (ASX: BLD) and Fortescue Metals Group Limited (ASX: FMG).

Alternatively, I'm tipping these top shares to beat the market in 2018.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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