Australia | Apr 13 2006
Wesfarmers (WES) and Dyno Nobel’s (DXL) decision not to proceed with the Moura ammonium nitrate expansion, due to escalating construction costs, is seen by analysts at UBS as a show of "financial discipline" plus as a positive for Orica (ORI).
On the analysts’ calculations, if the expansion had gone ahead, "the Australian market would likely have been marginally oversupplied upon commissioning," which they say may have forced Orica to export or caused a more competitive environment.
Following the decision, the analysts now see little possibility of new supply until after 2009, and as such domestic oversupply possibilities are seen "decreasing."
As far as Orica is concerned, the broker sees the outlook as remaining strong, while pointing out that Dyno "continues to import material quantities: of ammonium nitrate, and that it may knock on Orica’s door for near term supply".
UBS rates the stock as Neutral, with a target of $24.11, while of the nine other brokers and equity advisers in the FN Arena database covering the stock, five rate it positively and for are neutral.