Agrium downgrade spells pain for Incitec Pivot

Overnight one of the largest agribusiness in the US, Agrium, downgraded its third quarter production and earnings guidance, which will flow through to IPL’s fertiliser numbers.

Agrium is one the largest consumers of IPL fertiliser products and this downgrade will impact on its already shaky division. The fertiliser business saw EBIT contracting by 18.6% in the first half of 2013, and missed estimates by a massive 26%, with a print of $49.6 million compared to $67.2 million.

IPL has already been impacted by the Indian government’s decision to cut phosphate subsidies even further, which has seen demand plummeting and remains a thorn in the side of IPL’s further plans in the region.

IPL was hoping for the US and Australian arms to go through seasonal changes as the US summer ramped up and the Australian division moved into spring. However last night’s news from Agrium puts the US estimates in jeopardy.

What IPL will need to see is the explosives division continuing to hold the line and even taking up the slack from the fertiliser business. The division did manage to beat the corresponding period last year in the first half, with a solid print of $146.8 million. However, the read was below estimates due to sluggish mine expansion from major clients and the 13.2% miss on estimates has added further pressure to the struggling share price, as the explosives division is IPL’s bread and butter.

There is no doubt the downgrade to Agrium will be viewed as a disappointment for IPL as it struggles to see baseline growth. On a technical level it has been unable to break out of a tight range between $2.60 and $2.80 even during a bull run in on the ASX. This suggests downside risk is possible considering the pull back the local market appears to be experiencing.

We are watching the $2.60 level closely; if broken on the back of this news then IPL may see $2.50 by the year end.  

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