Incitec Pivot is now Dyno Nobel (ASX:DNL), but will Trump’s America be a growth catalyst or achillies heel?

If you’ve looked at the list of ASX 200 companies in the past few days, you’ll see a company called Dyno Nobel and see Incitec Pivot gone. That is because Incitec changed its name, effective from the commencement of trade last Wednesday (April 2) following shareholder approval at last November’s AGM.

Many who aren’t familiar with this company would know that this company had two divisions – a fertiliser division and chemical explosive assets.

The latter was much more profitable, making $458m in pre-tax earnings whilst the former was not. Dyno Nobel wrote down hundreds of millions of dollars from the fertiliser division. And it tried to sell the fertiliser business off for some time but unsuccessfully.  Having written down value, it hopes to have a go at selling it once again.

The non cash impairment meant that in FY24, it made a $311m statutory loss compared to a $560m profit the year before. But for the impairment, the company’s profit would have been $401m.

But the company, now headed by former BHP executive Mauro Neves, now is focused on its explosive business.

Dyno Nobel

Dyno Nobel was always the name of Incitec’s explosives business but now it is the name of the company, reflecting that Dyno will be the focus. Who needs ‘exposives’, you might ask. Firework manufacturers? Bomb manufacturers? Actually, the answer is quarries where mining and other industrial activities take place. The business makes just over half its revenue from North America.

For this reason, Mauro Neves was excited about the election of Donald Trump, telling the AFR that the country’s economy would boom and it would be good for the company, because it would hasten infrastructure, mining and engineering projects.

One potential problem for Dyno Nobel is the transition away from coal with up to 2% CAGR decline annually until 2035, although it is hoped that metals will make up the difference. In particular copper in LATAM, gold in Africa and gold in Australia. This will mean an increased volume of explosives will be required, and that there will be a higher profit potential from those goods. It anticipates 1-2% CAGR growth rate to 2028 in North America and 2-3% in Australia.

At its AGM last year, Dyno Nobel told investors that it had the ambition to,’ Become the leading global explosives player doubling earnings and ROIC above WACC’ over 3-4 years. It aspires to double EBIT over that time frame and deliver an EBIT benefit run rate of ~40% to 50% by the end of FY25 from the performance enhancements it has made.

The company argued that these goals could be delivered through proprietary technology, a superior bundled product offering, deep customer relationships and privileged assets and network. Indeed it boasts clients including BHP, Rio Tinto and Fortescue in Australia. Clients in America include Vale, Agnico Eagle, Coeur Mining, White Rock Quarries, Hanka, Tek and Vulcan.

The next judgement day is 6 weeks away – and it may not be pretty

Mark in your calendars May 12, because that is when the company is expecting to report its 1H25 results – it uses an October to September financial year. The company has warned that investors should expect a 35-65 first half/second half earnings split for its Dyno Nobel business. As for the fertiliser business, it is expecting a 10-90 split due to persistently dry conditions causing farmers to delay fertiliser dispatches.

Unless the results come in significantly better than that (i.e. less one-sided) we think there could be a negative reaction on the day. Even though consensus estimates expect slight revenue growth (around 1%), its profit is expected to retreat 18% from what it would’ve been in FY24 but for the impairments – although it would obviously be an improvement from the statutory FY24 result.

Overall, we would avoid Dyno Nobel for the moment, but may consider it again later this year.

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