IPL has already corrected -31% from its 2022 high hence while its earnings read poorly the question is has negative sentiment taken the stock down into bargain basement territory? Weather is obviously cyclical by nature and the floods & rain that have limited farmers purchases of fertiliser wont always be in play as growers need to remain both efficient and competitive. The stocks now relatively cheap trading on a 7.9x PE for 2023 although the downside momentum suggests a test of $2.50 isn’t out of the question.
One option for IPL is to split its business into 2 although weather would still impact both of the entities i.e. explosives and fertilizer businesses with the former more exposed to commodities and the mining cycle. The demerger was delayed once but it doesn’t feel dead and buried with the move likely to improve operational efficiency. While this potential corporate move creates more uncertainty for IPL it is one that should add value by simplifying the messy business model. Lastly, another variable is John Ho who has become the companies largest shareholder, he doesn’t necessarily run into things but he does often end up doing deals e.g. Vocus (VOC).
- We can see IPL trading higher at some stage this year but where to start buying is the million dollar question, for now we want to look for a catalyst &/or deeper value.
