The company has made a -$155m write-down to Burrup. Deutsche Bank considers the non-cash adjustments of -$191m to be a minor negative as these highlight the ongoing earnings risk associated with the commissioning of the plant.
Orica no longer expects Burrup to operate at 20% capacity in FY19, with the foregone -$12m in earnings to be offset by the additional business initiatives. The plant is now likely to be commissioned in the first half of FY20 with a positive earnings contribution from the second half.
This is later than Deutsche Bank anticipated. The possible upside comes from higher ammonium nitrate prices on the east coast of Australia and new contracts in Queensland. Hold rating and $17.20 target maintained.
Target price is $17.20.Current Price is $18.81. Difference: ($1.61) – (brackets indicate current price is over target). If ORI meets the Deutsche Bank target it will return approximately -9% (excluding dividends, fees and charges – negative figures indicate an expected loss).