What Is Happening to the Incitec Pivot Share Price?

What does IPL do?

Incitec Pivot [ASX:IPL] is engaged in the manufacture, trading and distribution of fertilisers, industrial explosives and chemicals. It is therefore exposed to agricultural, industrial and bulk commodity prices. That means there are quite a few moving parts to IPL’s business.

What’s happening to Incitec Pivot’s share price?

Today, IPL released its half-yearly profit results. The result itself was ordinary, but the market believes that is as bad as it will get for the company. The market believes that now is the time to buy. That sentiment was reflected in the share price, which surged 10%.

As mentioned, the actual result for the six months to 31 March was ordinary. Underlying profit fell around 6.5%, to $137 million, while headline profit was just $30 million, impacted by a $105 million write down of the Gibson Island fertiliser plant near Brisbane.

What now for IPL?

As I mentioned, there are many moving parts to IPL’s business. Commodity prices impact on the demand for its end products. They also represent variable input costs for IPL’s own production.

In addition, having manufacturing operations in the US brings in currency risk too. Because of the difficulty in correctly anticipating all these moving parts, it is especially important in this case to ‘see what the chart is saying’. Combined with the fundamental analysis, this can give you valuable insight into the direction of IPL’s stock price.

Based on today’s share price reaction, it’s clear the market thinks the worst is over for the company. And it does look cheap based on 2017 earnings estimates, as it trades on an attractive P/E ratio of around 10 times.

But the two-year chart below doesn’t look very attractive. Despite today’s rally to around $3.16, the share price is still in a downtrend. I would prefer to see the stock trade above $3.30 before buying. If it breaks the lows around $2.70, it’s a sign that something isn’t quite right with the company. However, given these lows held back in 2014, I don’t expect this to happen.

Incitec Pivot Share Price

Source: BigCharts

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Greg Canavan

Editor, Markets and Money

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Greg Canavan is a Contributing Editor at Markets & Money and Head of Research at Port Phillip Publishing. He advocates a counter-intuitive investment philosophy based on the old adage that ‘ignorance is bliss’. Greg says that investing in the ‘Information Age’ means you now have all the information you need. But is it really useful? Much of it is noise, and serves to confuse rather than inform investors. And, through the process of confirmation bias, you tend to sift the information that you agree with. As a result, you reinforce your biases. This gives you the impression that you know what is going on. But really, you don’t know. No one does. The world is far too complex to understand. When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases. Greg puts this philosophy into action as the Editor of Crisis & Opportunity. He sees opportunities in crises. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines charting analysis with more conventional valuation analysis. Charting is important because it contains no opinions or emotions. Combine that with traditional stock analysis, and you have a robust stock selection strategy. With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the same mistakes that most private investors do every time they buy a stock. To find out more about Greg’s investing style and his financial worldview, take out a free subscription to Markets & Money here. And to discover more about Greg’s ‘ignorance is bliss’ investment strategy and the Fusion Method of investing, take out a 30-day trial to his value investing service Crisis & Opportunity here. Official websites and financial e-letters Greg writes for:

 


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