Incitec Pivot Expects to Lose Millions After Train Derails

Incitec Pivot [ASX:IPL] is an explosives and fertiliser manufacturer based in Australia. Not materials you would want to drop on the side of the road. Yet something worse has. IPL has announced today that a train crashes has left them disorientated and confused.

Derailed train loses millions

IPL has assessed the damages of a train which derailed on 27 December last year. The train was transporting a shipment of sulphuric acid when catastrophe struck. The acid was destined for IPL’s Queensland fertiliser plant. But the disaster has halted production along with transportation of additional inventories.

This sounds familiar. It’s similar to the dam disaster that still surrounds BHP Billiton [ASX:BHP]. The BHP situation affected millions of lives. Thankfully, the IPL situation will only affect millions of dollars.

The one-off occurrence is expected to impact IPL’s full year NPAT (Net Profit after Tax) by $14 million. Quite small when compared to its NPAT last year of 398.9 million. Yet I’m guessing shareholders won’t be so quick to dismiss the loss. A loss to profits can severely affect investors’ confidence. And that’s exactly what happened today.

Its clear investors are shaken by the loss. Share prices have trended down 4.12% prior to close. The downwards trend is no different to what’s been happening since the start of the New Year. But could this trend change?

Incitec Pivot

Source: Yahoo finance

What to do about Incitec Pivot shares

A little derailment won’t adversely hurt IPL in the long run. To tackle the transporting problem, Queensland Rail is now building deviation tracks around the derailment site. IPL expects full plant operations to resume in around two weeks.

And IPL is no stranger to operating in periods of economic slowing. IPL’s shareholders saw their value increase 13.12% while the market as a whole dived last year. It’s not amazing but it’s better than putting your money in the bank.

But let’s look at financials.

As I stated earlier IPL’s NPAT was 398.9 million last year. This figure has increased 37.87% from 2014. And its cash flow is very similar. IPL has been able to grow net cash by 884.71%. Sure, some of this growth was fuelled by borrowings. But strong growth never the less.

I believe IPL’s revenue for their explosive product could jump this year. IPL’s explosives are generally used for mining exploration. BHP and Rio Tinto [ASX:RIO] have shown no signs of slowing down when it comes to exploring.

Both BHP and RIO want to find new resources that can be exported to China. BHP has ramped up their copper production, while RIO is focusing on bauxite. All of this is good news for IPL. If miners aggressively explore, IPL has an opportunity to recoup the $14 million lost.

Härje Ronngard,

Junior Analyst, Money Morning

Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Fat Tail Investment Research, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

Money Morning Australia