ASX 200 chemicals giant Incitec Pivot leaps 8% on record year and share buyback news

Incitec Pivot had a very strong year…

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The Incitec Pivot Ltd (ASX: IPL) share price is having a strong day.

In afternoon trade, the agricultural chemicals company's shares are up 8% to $4.04.

This compares very favourably to the ASX 200 index, which is down 0.45% at the time of writing.

Why is the Incitec Pivot share price storming higher?

Investors have been buying the company's shares after responding positively to its full year results release this morning.

For the 12 months ended 30 September, Incitec Pivot reported a 186% increase in net profit after tax excluding individually material items (IMIs) to a record $1,027 million.

The Dyno Nobel Americas business was the star of the show, reporting EBIT of US$533 million, which was up from US$141 million a year earlier. Management advised that this was driven by continued uptake of premium technology underpinning excellent volume growth in Q&C, as well as a strong second half manufacturing performance capturing favourable commodity markets

Dyno Nobel Asia Pacific business delivered EBIT of $162 million, up from $140 million in FY 2021. This reflects customer growth and solid take up of Dyno's premium technology solutions

Finally, Fertilisers EBIT more than doubled to $614 million. Management notes that this was underpinned by its unrivalled distribution platform and manufacturing footprint, which provided customers security of supply.

Big shareholder returns

In light of this strong form, the company's board has declared a fully franked final dividend of 17 cents per share. This brings the total dividends to 27 cents per share for FY 2022.

But it gets better. An on-market share buyback of up to $400 million has been approved to be conducted over the next 12 months.

In other news, the aforementioned fertilisers business demerger has been delayed for up to a year following the receipt of "unsolicited approaches in relation to the potential acquisition of its ammonia manufacturing facility located in Waggaman, Louisiana."

Management is now undertaking a review of the strategic options for Waggaman.

Broker reaction

Goldman Sachs has reacted positively to Incitec Pivot's full year results. It said:

FY22 Adj NPAT of $1,027m was up 8% vs GSe and up 3% vs Visible Alpha Consensus (A$948m/A$993m). […] The biggest variance was in North America where lower than expected explosives earnings were more than offset but higher WALA and Ag & IC earnings.

IPL announced a $400m on market buyback. While we had anticipated strong cash generation (providing scope for capital management), this announcement was sooner than expected given the proposed demerger.

Goldman currently has a buy rating and $4.40 price target on Incitec Pivot's shares. Though, that could change once it has adjusted its financial model.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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