Solid Momentum Drives Orica’s FY26 Optimism

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This story features ORICA LIMITED, and other companies.
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Orica posted a strong FY25 result and forecasts improving growth across all three business segments through FY26.

-Orica’s FY25 result solid, slightly ahead of consensus
-Specialty Chemicals and Digital Solutions now primary drivers
-Around half of earnings stem from gold and copper sectors
-Adds incremental $100m to recently completed $400m buyback program

By Greg Peel

Orica ((ORI)) is not only the world’s largest explosives company, it’s the global leader in geotechnical and structural monitoring in mining and civil infrastructure and the world’s largest producer of sodium cyanide.

Orica is leading the industry with its technology offering. Importantly, notes Morgans, this area is high growth and high margin work. Orica’s management team continues to execute well and has a solid track record.

The company delivered a strong FY25 result (September year-end), with earnings growth across all segments reflecting improvements in mix and margin, ammonium nitrate re-contracting benefits, elevated mining exploration activity and record gold prices driving demand for sodium cyanide.

Earnings per share increased by 30% year on year, slightly ahead of consensus. Net operating cash flow was a standout, UBS suggests, increasing by 18% to $949m. Leverage of 1.4x was therefore at the low end of the target range of 1.25-2.0x. As such, Orica has allocated an incremental $100m to its recently completed $400m buyback program.

In Morgans’ view, this was a strong outcome given the geopolitical risks, economic uncertainty, adverse weather and weak demand for thermal coal. In FY25, Orica benefited from its continued commercial discipline, the uptake of its premium products and technology (mix benefits), which resulted in higher margins.

FY25 also benefited from new acquisitions (Terra and Cyanco), re-contracting benefits, less turnaround activity than FY24, and a general uptick in exploration activity.

Macquarie notes the composition of Orica’s earnings growth is changing, with Speciality Mining Chemicals and Digital Solutions coming to the fore and the rate of growth in Australia-Pacific slowing after moving through the bulk of ammonium nitrate price re-sets.

Specialty Mining Chemicals is benefiting from strong demand from the gold mining sector for sodium cyanide, while Digital Solutions is benefiting from increasing global exploration activity.

Good momentum

Orica has started the year “with good momentum”, according to management, which expects improved FY26 earnings across all three key segments.

Blasting Solutions earnings growth is now expected above that of GDP growth “through the mining cycle”, supported by improved product mix, wider margins earnings and technology benefits, up from previous guidance of just “growth”.

Digital Solutions’ earnings growth is now forecast to be in the mid-teen percentage, up from low double-digits previously, as customer adoption accelerates and exploration activity increases.

Specialty Chemicals’ earnings growth is now guided to high single-digits, up from mid single-digits prior, buoyed by strong mining sector activity, especially in the gold industry.

The gold and copper sectors now make up around half of Orica’s group sales, Ord Minnett points out.

Blasting Solutions is forecast to see further re-contracting benefits, offset by weaker demand from the US and Indonesian thermal coal markets, the major Carseland ammonium nitrate facility (Canada) turnaround (scheduled for early second half FY26) and a non-repeat of a $15m carbon credit benefit.

Expanding global exploration activity and further cross-selling opportunity conversion is expected to support Digital Solutions. Speciality Mining Chemical earnings are anticipated to strengthen on strong demand for sodium cyanide from gold customers and higher manufacturing facility output as Winnemucca (Nevada) ramps up.

Operational challenges at the Winnemucca facility have been progressively addressed with the planned critical safety upgrades completed successfully.

It’s a blast

Despite Blasting Solutions volumes falling by -4.2% in FY25, earnings were up 14.9%. Morgans notes earnings per tonne increased to $217.2/t versus $181.1/t in prior year, proving Orica doesn’t require rising ammonium nitrate volumes to grow but is now a mix and margin improvement story. Its premium products and advanced blasting technologies are gaining strong traction.

Blasting Solutions is in the driver’s seat, Jarden suggests, despite disruptions. Orica saw its underlying earnings per tonne accelerate through the second half, driven by improving pricing dynamics (Asia-Pacific) and prudent cost control across its operations.

The outlook for FY26 starts the year mixed, Orica will cycle the $15m of carbon credit benefits and will undergo a major turnaround in North Americas (Carseland), which has been well flagged to the market in Orica’s disclosures.

The balance of the outlook for North Americas now swings on Orica’s ability to offset any near-term supply chain disruptions for its North Americas distribution market where its major supplier, CF Industries, has declared force majeure.

Orica can likely offset these headwinds via its global sourcing, but that likely will come at the sacrifice of some near-term margin given higher transportation and route to market costs, Jarden points out.

Perfect score

It can be considered a kiss of death, but all seven brokers monitored daily by FNArena covering Orica have Buy or equivalent ratings, unchanged ahead of the FY25 result, as does Jarden.

The consensus target among the seven is $26.58, up from $23.65 prior, while Jarden retained its $25.60 target.

Orica’s balance sheet remains strong, its free cash flow and return on net assets outlook is improving and market dynamics remain supportive, Jarden believes. Overall, this broker thinks the strong earnings growth profile, prospects for further capital returns for shareholders and modest financial leverage provide considerable optionality and appeal for investors.

Management is not planning material M&A, Macquarie notes. There are bolt-on acquisition opportunities in specialist chemical areas (servicing the copper market) but nothing of large scale. Hence, the share buyback has been upsized by $100m to $500m.

Orica is trading at a -10% PE relative discount to the ASX100 versus a circa 5% long-term premium, Macquarie notes. On a 17.1x FY27 forward PE, Orica trades at a discount to Dyno Nobel’s ((DNL)) 18.6x.

Leverage to attractive industry fundamentals, market leading positions, solid earnings growth, proven management team plus a strong balance sheet support Morgans’ Buy rating.

Orica is positively leveraged to resilient global mine production activity, and supportive ammonium nitrate prices given relatively balanced global supply. UBS expects mix and margin improvements from the uptake of premium blasting solutions and technology services, plus the integration of recent acquisitions, to drive a three-year compound earnings growth rate of 8%. UBS sees ongoing PE re-rate potential.

Bell Potter suggests Orica is well positioned to deliver earnings growth in the short-to-medium term, underpinned by cyclical tailwinds in mining and exploration markets.

Earnings growth will also be supported by further premium product uptake, strong facility performance across ammonium nitrate and sodium cyanide supply networks and commercial discipline.

The upgraded target for medium-term return on net assets to 13.5-15.5% (previously 13.0-15.0%) and the $100m buy-back extension (to be completed by March 2026) are considered positive developments.

Ord Minnett has also retained its Buy rating and Morgan Stanley an Overweight rating (Buy-equivalent).

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