Orica (ORI) Company Stock Update

Submitted by Jim Thesiger on 12 June, 2008 - 15:50

Orica (ORI) has a target price of $33.50 and an Outperform recommendation from Australian Stockmarket analyst Macquarie Research Equities..

Orica (ORI) – Money to Be Made In Ammonia

Two sectors that have performed well recently have been Resources and Agriculture as global demand strength remains for raw materials and food. An essential input to both of these industries is Ammonium Nitrate (AN), used in the production of explosives and fertiliser, with AN a core chemical that Orica Limited (ORI) manufactures and is central to ORIs business. ORI has performed admirably over the past few weeks despite the market pullback but has still fallen from a short term high of above $31 to currently be trading below $29. In today’s note, Macquarie Research Equities (MRE) reviews the current market for AN and the impact to ORI.

The regional market for AN is tightening as demand increases and supply is stagnant in the short term. MRE note that there is a planned AN start up in WA that is using a floor price of US$700/t while ORIs current contracts are priced at AUD$500/t. MRE predict that the impact of these price increases are going to contribute an extra 195M in EBIT over the next three years but highlight that due to the length of existing contracts (1 - 3 years) the benefits will take time to emerge.

MRE have maintained their outperform recommendation with a $33.50 price target. In the context of the broader market, ORI provides relatively defensive exposure to resources related demand. The real focus going forward is ORI’s leverage to improving domestic ammonium nitrate volume and price fundamentals.