Dyno Nobel (DXL) Share Trading Recommendation

Submitted by Craig Strzelecki on 22 February, 2007 - 17:44

Dyno Nobel (DXL) have a reiterated Outperform share trading recommendation and an increased price target of $2.86 per share from analyst Macquarie Research Equities (MRE). Dyno Nobel (DXL) reports its 2006 result this Monday, on the 26th February. At this stage of the reporting cycle, many investors are looking at companies that have underperformed the broader market rally and have lagged their peers. One such stock that fits this bill is DXL. For the calendar year to date, shares in the explosives producer have risen 2.9 percent versus a return for the S&PASX 200 of 5 percent. MRE forecast 2006 group revenue of US$1.285bn, +8% on prospectus. This is expected to translate into Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) of US$202.5m which is +9% on prospectus and +53% on 2005, highlighting the strong performance of the business in 2006. This has been driven by strong end-markets and successful integration of the ETI and Maitland acquisitions and associated growth initiatives. North America and Australia are both contributors, with North American EBITDA forecast at US$173.2m (+6% on prospectus) and Australian EBITDA of $31.9m (+24% on Prospectus). This all translates into an MRE forecast pro forma Net Profit After Tax (NPAT) of US$92m, +11% on prospectus of US$82.8m and a final dividend of A$0.035ps (nil franking) based on a 45% payout ratio. MRE expect to see a strong improvement in 2H operating cashflow versus the US$17m reported in 1H, to around US$63. The improvement reflects an unwinding of the 1H’s seasonal working capital build and an improved performance from acquired businesses. DXL's North American business continues to perform well despite a weaker US housing market (8% of North American revenues), although 1H comparisons are likely to be tough due to an unseasonably mild US winter in 1Q06. MRE’s 2007 earnings assume 1–2% volume growth in North America which is less than FY06’s 3–4%, reflecting slower aggregates and coal markets. The other drivers are a benefit from the Mexico low cost platform, synergies from acquisitions (ETI etc), the start-up of the 150kt Cheyenne AN expansion from October 2007 and further profit growth in Australia (new business boosting volumes). The North America ammonium nitrate pricing environment is expected to remain rational, reflecting sector consolidation and balanced demand/supply. An amazingly strong US agriculture market (high corn prices, biofuels etc) is likely to see any “spare” AN solution diverted to urea production, thus tightening AN solution supply for the industrial market. There is potential for new acquisitions in “re-entry” regions such as Latin America, Europe and South Africa. DXL recently confirmed that it has total available debt capacity of A$450m from current and new facilities which will support the development of Moranbah (DNM) "well into 2007" in addition to other growth initiatives.

Dyno Nobel Limited is listed on the Australian Stock Exchange (ASX) under stock code DXL. You can view their investor website here. DXL was listed on the ASX on 7 April, 2006. The Company is a manufacturer and distributor of commercial explosives in North America and Australia. Geoff Tomlinson is the Chairman of Dyno Nobel and the CEO is Peter Richards. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade DXL. Check your charts and good luck with your share trading!

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