Incitec Pivot Limited (IPL) is a leading international chemicals company with nitrogen-based manufacturing at its core. IPL’s expects its growth to be driven by global demand for fertilisers and explosives, in agricultural and mining.

Pros:

• Current price reflects the cyclical low. The forward P/E of 6.8 is attractive.
• Likely forward yield of around 10%
• Significant insider purchases during Nov & Dec 2008.

Cons:

• Overpaid for 2008 acquisition of Dyno Nobel. Future write-offs of goodwill will dampen reported earnings.
• Negative tangible equity.

My detailed analysis of IPL is available here in pdf format.

This chart from Purdue University highlights how the once stable fertilizer prices started to show more volatility in 2001 with dramatic price increases occurring in 2008. Prices have been falling since peaking in 2008.

Purdue Uni’s document, Factors Shaping Price and Availability in This Year’s Fertilizer Market, provides an excellent overview on the fertilizer market and is well worth reading by both investors and farmers.

Fertilizers prices have been falling; however, due to the falling prices of the major input cost, natural gas, margins are likely to remain to attractive. The Dyno Nobel acquisition was a poor allocation of capital which calls into question the quality of IPL’s management team.

Despite the questionable quality of the management team IPL is well positioned for any upswing in hard or soft commodity prices. With considerable insider buying and a recent rights placement at higher prices the current share price looks attractive. I have added IPL to my watch list.

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