Why is this ASX 200 stock surging despite a $500 million writedown?

Investors are looking beyond this write-down and focusing on its strong underlying performance.

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Two colleagues at work looking at a tablet and smiling at a rising share price.

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The Incitec Pivot Ltd (ASX: IPL) share price has certainly caught the eye of investors on Thursday.

In afternoon trade, the ASX 200 stock is up almost 6% to $2.99.

Why is this ASX 200 stock surging?

Investors have been bidding the fertiliser and commercial explosives company's shares higher today following the release of its half-year results.

For the six months ended 31 March, Incitec Pivot posted a net loss after tax including individually material items (IMIs) of $148 million. This is down from a $354 million profit in the prior corresponding period.

The ASX 200 stock advised that this includes IMIs totalling $312 million after tax. This relates primarily to a $498 million non-cash impairment of the fertilisers business, which was partially offset by a gain on the sale of IPL's ammonia manufacturing facility in Waggaman, Louisiana.

However, investors appear to be focusing more on the company's underlying performance during the half, which was actually very strong despite its loss.

Incitec Pivot revealed that it delivered underlying EBIT growth of 18% compared to the prior corresponding period after adjusting for re-basing items. Management advised that this reflects growth in all customer-facing businesses, including record first half EBIT for the Dyno Nobel Asia Pacific business and the Fertilisers Distribution business.

Pleasingly for shareholders, the loss after tax didn't stop the company from declaring an unfranked interim dividend of 4.3 cents per share.

Management commentary

The ASX 200 stock's CEO and managing director, Mauro Neves, was pleased with the half. He commented:

Our Dyno Nobel and Incitec Pivot Fertilisers businesses have delivered strong underlying earnings performances across the first half, with record first half results in Dyno Nobel Asia Pacific and our Fertilisers Distribution businesses.

Our headline result reflects major restructuring in our asset portfolio across both the Dyno Nobel and Incitec Pivot Fertilisers businesses. After re-basing for these items, and movements in commodities and foreign exchange rates, underlying earnings were up 18%, with growth in all customer-facing businesses. This is a testament to the hard work of our teams across our businesses and reflects a solid platform for future growth.

Outlook

Management advised that it is focused on delivering continued earnings momentum in its customer-facing businesses in the second half of FY 2024. It is also progressing its strategy of transforming the global explosives business to unlock its full potential and deliver improved returns to shareholders.

However, no guidance has been provided for the full year with today's results.

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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