JPMorgan downgrades Incitec Pivot
JPMorgan has downgraded Incitec Pivot (NEUTRAL, price target $3.77), arguing the diammonium phosphate ("DAP") price momentum has stalling and is beginning to reverse. From a comparative valuation perspective, the broker notes that IPL is trading at a significant premium to peer Orica.
JPMorgan said that after surging from US$285/t in late Oct09, DAP prices stabilised around the US$500/t level. The broker also highlights recent reports that suggest DAP prices have started declining.
In addition, JPMorgan said that price weakness on the fertiliser side of IPL’s business is unlikely to be offset by the performance of its explosives unit. The broker said the business faces demand downside in the US with volume weakness also likely in Australia.
The broker says that IPL is unlikely to outperform in the short-term, with its sum-of-parts valuation coming in below its current share price. The broker notes that IPL is trading slightly below its average valuation but that sum-of-parts was a better short-term measure.
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