Analysts sceptical about Incitec Pivot fertiliser biz sale
Incitec Pivot might be edging closer to selling off its Australian fertilisers business – with Indonesia’s Pupuk Kaltimunderstood to be the preferred bidder – but Morgan Stanley isn’t so sure it’s going to sail through.
Incitec Pivot’s chief executive Jeanne Johns left the business on June 30. Chris Hopkins
In a note to clients, head of industrials research Andrew Scott didn’t take issue with the expected $1.5 billion valuation, saying it was the “best case for shareholders”.
Morgan Stanley itself values Incitec Pivot Fertilisers at around $900 million in its sum-of-the-parts valuation.
However, he flags “some obstacles”, namely supply certainty, Foreign Investment Review Board considerations and the gas disruptions at Incitec Pivot’s Queensland Phosphate Hill mine.
“Incitec Pivot has flagged $70-90 million of additional costs this year to supplement gas supply,” Scott said, referencing Phosphate Hill.
“While industry data suggests relatively robust flows, we think a potential buyer could struggle to get comfort on future gas reliability. The plant has historically been poorly positioned on the cost curve and additional gas costs could make it unviable at long run fertiliser and currency prices.”
On supply concerns, Scott notes that Incitec Pivot supplements its sulfur needs from the Glencore smelter and that while the smelter’s life has been extended to 2026, there’s no “certainty of production beyond then”.
“External sourcing of sulfur would present a major hit to the plant’s profitability,” he said.
Finally, Scott flagged that Incitec Pivot may need FIRB approval to have an international buyer gain control over a “significant domestic diammonium phosphate supply” – not always the easiest of tasks.
The $5.4 billion
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