Orica (ORI) has a reiterated Buy stock recommendation and a $34 share price target from Australian stockmarket analysts from Citi.

Orica Ltd: Staying bullish on pricing outlook

Bullish industry outlook overrides result — Orica delivered a mixed result, 6% short of our forecast. We retain our positive view, driven by an increasingly positive outlook for explosive prices on the back of tighter fertiliser markets and sharply higher capacity replacement costs. We reiterate our Buy recommendation and $34.00 target price.

1H result — Positives were stronger-than-expected contributions from Consumer Products and Chemnet, despite challenging market conditions, and a solid contribution from core business Mining Services. Negatives were increased working capital ($115m), higher corporate costs ($20m, of which $8m non-recurring) and a weaker-than-expected contribution from Minova.

Pricing upside — Fertiliser grade AN prices have increased by 85% (in USD terms) since late 2006. We continue to expect Orica to benefit from this stronger pricing environment as its explosives contracts are renegotiated over the next 1-3 years.

Earnings revisions — Our FY08e earnings have been reduced by 5% on higher corporate costs, Minova shortfall, and revised currency forecasts. Our FY09- FY10e earnings have been trimmed by 2%-3%, reflecting revised currency and corporate cost forecasts, partly offset by higher AN price forecasts.