MENU

The reason behind Incitec Pivot Ltd big share price crash today

The latest profit results from Incitec Pivot Ltd (ASX: IPL) exposes the risk of investing in the chemicals sector as all three leaders in this space have disappointed investors on the profit front this month.

Incitec is the latest bearer of bad news after it reported a drop in interim profit, which triggered a 4.5% slump in its share price to $3.58 during lunch time trade.

The stock is the second worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index, and while that isn’t quite as bad as the 20%-odd crash by pet services and products group Greencross Limited (ASX: GXL) on a big write-down, it’s still disconcerting given the string of profit misses in the sector.

Orica Ltd (ASX: ORI) got hammered on Monday from its poorly received results even as the outlook for its explosives business was errm… supposed to go boom; while Nufarm Limited (ASX: NUF) lowered its full year profit expectations on the back of unusually dry weather impacting on sales of its seeds and crop protection chemicals.

Incitec has a foot in each camp as it sells explosives to the resurgent mining industry and fertilizers to farmers. Management reported a 3.3% drop in adjusted net profit to $147.1 million for the six months to end March, but the drop in net profit was a lot worse at 95% if you included the write-down of its Dyno Nobel Asia Pacific business.

Interim revenue actually went up 9.6% to $1.68 billion but no one was listening as investors are concerned that the stock is facing a profit downgrade by brokers.

Incitec will need to pull a bunny out of its hat if it is to make full-year earnings per share (EPS) consensus forecast of 22.75 cents. Incitec posted an EPS of 8.8 cents for the first half and that is on an adjusted basis.

Its fertilizer business was a drag as it was impacted by the same weather issue on the east coast of Australia that has struck Nufarm, while Incitec is struggling with an oversupply of ammonia nitrate (used in explosives) in Western Australia.

Demand for explosives in the US and Australia may be rising but the gains in volumes have been offset by operational downtime across a number of its plants.

The company’s outlook also didn’t give much for investors to look forward to. A reasonably promising forecast for explosives is nothing new and Incitec warned that a $1 per gigajoule increase in gas prices on Gibson Island will shave $14 million off its earnings.

Management is expecting gas prices to increase by around $3.50/GJ. Ouch!

I think Nufarm represents a much better opportunity for those with a medium to longer term outlook. Nufarm has omega-3 enriched canola seeds that should open a very lucrative revenue stream for the company from FY19 onwards.

Looking for other stocks with a bright outlook? The experts at the Motley Fool are particularly bullish on a group of stocks, which they believe will make a big impact on the market.

Follow the free link below to find out what these stocks are and why they should be on your radar in 2018.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Greencross Limited. 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!