Dyno Nobel Flicks The Switch To Blasting

This story features DYNO NOBEL LIMITED, and other companies. For more info SHARE ANALYSIS: DNL

After revealing consensus-beating interim results, Dyno Nobel intends to transition to blasting services only.

-Dyno Nobel’s interim results beat consensus forecasts
-Transition Program on track, and separation strategy update
-A smaller Dyno is aiming for stable, higher quality earnings

By Mark Woodruff 

Global leader in commercial explosives Dyno Nobel (formerly Incitec Pivot) ((DNL)) reported consensus-beating first-half underlying earnings from its Explosives business.

The company also realised $25m in net benefits from its Transformation Program and management touted key milestones achieved in the separation strategy announced in September.

The company previously operated two customer-facing divisions: Dyno Nobel, which provides mining services across EMEA and Asia Pacific, and Incitec Pivot Fertilisers, a leading fertiliser manufacturer and distributor along Australia’s east coast.

A binding agreement to sell the fertiliser distribution arm (IPF Distribution) to Ridley Corp ((RIC)) for $300m is now in place.

Ridley also has put/call options to subsequently acquire the Geelong North Shore property for $75m.

Comprising explosives and technical blasting services, Dyno Nobel is one of the largest industrial explosives distributors in North America and Australia.

When the separation is completed, Chief Executive Mauro Neves stated, “The explosives business will be a smaller company, but it will be more stable with a higher quality of earnings”.

The company manufactures ammonium nitrate-based explosives and initiating systems, and nitrogen-related industrial and specialty chemicals. Operations are largely US-based, with management highlighting tariff impacts are expected to be minimal with mitigation measures.

Dyno is a critical supplier of explosives and blasting technology to the Bowen Basin’s major coal mines, anchored by its Moranbah ammonium nitrate plant.

Blasting is an essential step in extracting the minerals required to meet the world’s demand for power, infrastructure and consumer goods. Construction, mines, quarries and seismic explorers use Dyno Nobel products to achieve safety goals and improve operational efficiency.

Excluded from the Ridley acquisition is the Phosphate Hill fertiliser manufacturing operation, as well as the closure and remediation costs associated with the Gibson Island (sold for $100m) and Geelong manufacturing operation.

Management also executed an agreement to sell the company’s offtake agreement with Perdaman Chemicals and Fertilisers to Macquarie Group’s ((MQG)) Commodities and Global Markets business for gross proceeds of up to $145m.

The total expected net fertiliser proceeds are $606m, with $437m due to settle in the second half of FY25 and the remaining $169m across FY27-FY28. The total includes $121m in working capital benefits from Geelong import transition and Phosphate Hill separation.

Management noted proceeds will be used to reduce debt and repay its $285m trade working capital facility.

The Phosphate Hill strategic review is progressing with an outcome no later than September this year. If there isn’t a buyer, these operations will likely be closed, suggests Morgans.

The company’s suspended buyback has re-started immediately post result. Around -$88m was spent in the first half with up to -$663m still outstanding.

The board declared an interim dividend of 2.4 cents.

First half results

Interim earnings (EBIT) of $174m proved 8% better than the consensus forecast, assisted by a lower D&A charge, notes Morgan Stanley. Dyno Nobel reported first half profit ex individually material items (IMIs) of $88m above the consensus forecast for $74m.

Dyno Nobel Americas (DNA) outperformed, while Dyno Nobel Asia Pacific (DNAP) underwhelmed due to extreme first-half weather impacts in Queensland.

Adverse weather plus lower related Ammonium nitrate (AN) demand in the Bowen Basin led to a reduced production guidance at Moranbah to 270-280kt from 290-300kt prior. Demand is expected to normalise in the second half.

Phosphate Hill FY25 production guidance of 740-800kt is unchanged. Work on the Phosphate Hill review continues, with a decision expected no later than September. Management noted engagement with an unspecified party conducting due diligence.

Profit including IMIs was $7m for the half compared to a -$148m loss at the same time last year.

IMIs totalling -$80m (after tax) primarily relate to costs associated with the announced closure of the Geelong manufacturing plant and a non-cash impairment of the Fertilisers manufacturing facility at St Helens in Tasmania.

Transformation program

Macquarie notes Dyno’s Transformation Program is on track with $25m of benefits delivered in the first half compared to $64m in FY24.

Management re-iterated the Program’s target to double earnings (EBIT).

If circa $600m in FY27 is the new group earnings base for the Explosives business, Morgans notes this level is lower than the consensus forecast for $642m (includes Fertilisers), suggesting the sale of Fertilisers is dilutive but should be replaced by higher quality Explosives earnings.

Outlook

The first half result is a step in the right direction, on Morgan Stanley’s assessment, but the analysts feel the market will wait for a full fertiliser separation.

Following interim results and the fertiliser separation update, the average target of six daily covered brokers by FNArena fell to $2.92 from $3.21 earlier this month.

The new average target suggests nearly 10% upside to yesterday’s closing share price, ex dividends.

Of the six brokers, Ord Minnett and UBS are Buy-rated, Morgans, Citi, and Morgan Stanley are on Hold, and Macquarie is currently under research restriction.

Outside of daily coverage, Goldman Sachs has a Buy rating alongside a $3.05 target price.

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