Incitec Pivot Ltd T.IPL

RE:RE:Reuters / $24

[sclarda]

Fantome  wrote

As I mentioned in my post on 11Feb....my analysis would put a fair market price for IPL between 22 and 28 a share depending on what discount rate you used for future earnings and whether they get a partner for Heartland or not.

The big issue for IPL is finding a way to finance the cost overruns for Heartland and the fact that they haven't found a JV partner to finish the project.  Right now this puts IPL in a somewhat vulnerable position and Brookfield is trying to take advantage of this fact by making a lowball offer and reap the benefits of Heartland since they have the money to get the project completed.

Since the bulk of the shares of IPL are owned by retail investors as opposed to institutions....a buyout by Brookfield is more difficult than usual.

It is really hard to predict how this will play out but it seems to me that if enough retail investors stand firm....then Brookfield will have to choose between offering substantially more for IPL or abandoning their attempt.

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For 2021 IPL has a capex budget of $1 billion.  Aprox. $800 million of that is for Heartland. Last year they had aprox. $790 million of FFO.  They payed out aprox.  $210 million in dividends and this years years FFO will likely be aprox $50 million less because of the European oil storage sale and allowing for the decrease in interest payments from the paydown of debt that they did with part of that monery.  So $740 million in FFO minus $210 million in dividends equals $530 million in free FFO after dividends. 

 That would leave a shortfall for this years capex of $470 million.  IPL currently has $2.1 billion in UNDRAWN credit facilities and only need another $470 million for capex so even after they draw that money they will still have over $1.6 billion in undrawn credit facilities so i dont see where they will have to go looking for money to finish Heartland. 

A couple years ago at the time of the offer by Li Kai Shing  you were valuing IPL at $32 to $40 or an average of $36. At that time Heartland was basically a hole in the ground with several billion left to be spend with a lot more unknowns than now  and years away from producing cashflow.

  Now as Heartland is nearing completion you are valuing IPL at $22 to $28 for an average of $25.   So you are telling us that even though the project is nearing completion and not the hole in the ground it was two years ago because of $500 million in cost over runs which has been more than made up by the reduced dividend of the last year you are reducing your market value of the company by  $ 9 per share or aprox.  $3.9 billion. 

I think you might want to re check your numbers.