Orica (ORI) Update

Submitted by Craig Strzelecki on 1 May, 2007 - 19:03

Orica Limited has a restricted share price target and broker call from sharemarket analyst UBS. Underlying EPS up 44%: Strong organic earnings and cashflow in the 1H: Orica's 1H result was up 44% on a normalised EPS basis, driven by strong 22% organic growth in its mining services division, and 7% in its consumer and chemicals divisions. This was only 1% below our forecast. Free cashflow generation excluding acquisitions was also strong benefiting from a working capital reduction. Changes to composition of forecasts: The analyst has revised their forecasts over the next 3-years by raising mining services EBITA by 3-5%, reducing the consumer and chemicals divisions by 9-13%, and raising their interest forecasts. The net impact on FY07-FY10 EPS is immaterial. Their forecasts still imply healthy average growth in EPS of 22%pa over the next 3 years, before earnings growth moderates in FY10 due to the Moranbah impact. Value unlocking strategies unlikely in our view: Management has indicated that it does not intend to change its gearing policy, nor does it see any clear benefit in demerging the consumer and chemicals divisions. They therefore see upside from here as largely limited to earnings surprise, acquisitions or a higher bid. Orica (ORI) is currently trading just below the A$32 approach price. The current share price implies 17x our FY08 EPS forecast, 11.5x EBITA, and 9.5x EBITDA which are all at a 10% discount to the All Industrials average.

Orica Limited is listed on the Australian Stock Exchange (ASX) under stock code ORI. You can view their investor website here. ORI was listed on the ASX on 28 November, 1961. Orica is the world's leading supplier of commercial explosives and is also the largest chemical company in Australia and New Zealand. It manufactures and supplies commercial explosives, industrial and specialty chemicals, decorative paints, and plastics. Orica has significant operations in Australia, New Zealand, South East Asia, North and Latin America. Orica Mining Services offers commercial explosives, initiating systems and Blast-Based Services to the mining, quarrying and construction industries. The business is run globally with a presence in Australia, Asia, Europe, the former Soviet Union, Africa, the Middle East, North America and Latin America. Orica Consumer Products is Australia and New Zealand’s leader in decorative, preparation, and lawn and garden care products. The business manufactures and markets icon brands including Dulux, Berger, British Paints, Levene, Walpamur, Cabot’s, Feast Watson, Intergrain, Acratex, Selleys, Rota Cota, Poly, Turtle Wax, Yates, Thrive, Zero and Dynamic Lifter in Australia and New Zealand. Chemnet is Australasia’s leading trading and distribution solutions business, servicing more than 40 key industries. The business is based in Australia and operates in New Zealand, China, Hong Kong, Fiji, Indonesia, Thailand, Malaysia, Singapore, Peru and Chile. Chemical Services is a major supplier of chemicals, services and technology to the water treatment, mining chemical and industrial chemical markets. The business is based in Australia and has operations in the United States and the United Kingdom. Donald Mercer is the Chairman of Orica and Graeme Liebelt is the CEO. Find out the meaning of the recommendations in this primer. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade ORI. Check your charts and good luck with your share trading!