Incitec Pivot Ltd T.IPL

Ben Pham @ BMO

[Dibah420]

2021 capex budget higher than expected. IPL initiated a 2021 capital budget of $1B, which includes $70M for sustaining capital. This was above our $860M estimate (and consensus of $926M), which includes $75M for sustaining capital. About $800M is earmarked for the $4B Heartland petrochemical project: the PDH component is expected to be mechanically complete by May 2021 with commissioning planned for balance of year, while the PP plant is expected to be mechanically complete by end of 2021 leading to start-up of the integrated complex (PDH+PP) early 2022. The 2021 capex spend for the remaining business segments ($20M in Conventional, $25M in Oil Sands, $10M in Bulk Liquids) were largely consistent with our expectations. See Exhibit 1 for more details on the 2021 capex budget. Well funded for the 2021 capex plan. IPL noted that funding for its 2021 capex program will be sourced from internally generated cash flows and available credit capacity bolstered by the recent sale of a major portion of its Bulk Liquid Storage business (closed Nov 12 for £420M). Recall, the company is still undergoing a process to secure an equity partner for the HPC project, with a conclusion expected 1H/21. No change in our EBITDA estimates and $15 target. We have updated our financial model to reflect the 2021 capex budget. As there were no new projects announced, our forward EBITDA estimates are unchanged: $971M in 2020, $942M in 2020, and $1,316M in 2021. Given no change in our EBITDA estimates, we reiterate our $15 target (which is based on a blend of our DCF and 9.5x our 2022E EBITDA estimate).