Incitec Pivot (ASX:IPL, Financial) (Australia), a large manufacturer of mining explosives and fertilizers, was a top contributor to the Fund’s performance for the one-year period. The company has been a beneficiary from commodity price increases, notably for its fertilizer business (di-ammonium phosphate and urea) as well as the ammonia produced at a large-scale plant in Waggaman, Louisiana. This, combined with strong underlying demand for explosives for the mining industry, has led to a significant increase in profitability. This increase was evident in the first-half results the company released in May, which indicated that EBIT had increased by 478% year-over-year, albeit against an easy comparison. In addition, the company announced that it intended to split the company into two: Dyno Nobel and Incitec Pivot Fertilizers. The rationale being that the companies have limited synergy, different end markets, different capital needs and should trade at different valuations. The separation makes sense, in our view, and is something we have eyed as possible for some time. While Incitec is well-placed to benefit from the current market environment and we believe that management is pursuing the right strategy, we trimmed and then exited our position and redeployed the proceeds into other investments as the company approached our view of its intrinsic value.
From David Herro (Trades, Portfolio)'s Oakmark Intl Small Cap (Trades, Portfolio) Fund third-quarter 2022 commentary.
