Incitec Pivot – seeing a phosphate move

Diammonium phosphate (DAP) prices have seen a 36% rise since the November 13 low of US$478 a tonne. 

This change in price is seeing broker moves in IPL as the DAP prices are positively impacting the 2014 earnings forecast by as much as 2% for every US$10 a tonne move.

The sharp increase in global DAP prices was expected considering the tightening on supply by sub-continent nations that are looking to moderate the fertiliser environment.

Currently the consensus read for DAP prices in FY14 has been upped to US$445 a tonne from US$390 a tonne at the previous revision. This move is impacting IPL’s EPS positively and is seeing target prices shifting as the above assumptions see earnings higher by as much as 15%.

Considering the relatively stable earnings stream IPL develops from its explosives divisions, any positive increases to the slightly volatile fertiliser division has strong upside potential. IPL believes China demand has increased in the off season and expects DAP flows to increase into the second half of the year when earnings ramp up.

The earnings breakdown half on-half sees a 30:70 ratio split between first half and second half; however this may alter further as IPL takes advantage of the global price increases.

These developments have seen the consensus price target upped to $3.38, which represents a 9.5% upside. The technical charts are also supportive of the stock, with the uptrend yet to be broken and volumes remaining robust. IPL looks to be a good short-term trade as brokers rush to update forecasts and target prices. 

IPL
IG Charts

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