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Orica Ltd

ORI: XASX (AUS)
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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation
A$17.00MhbcHcvmwxmr

Orica First-Half Profit Below Expectations, Fair Value Falls 12% to AUD 22

We reduce our fair value estimate by 12% to AUD 22 per share. Given the slowdown in Chinese construction, expected anaemic coal and iron ore volume growth, and weaker commodity prices, we expect miners to continue to pressure mining service providers for cost savings. As contracts mature, we think the renewal terms will be less lucrative, lowering margins. With the end of the China commodities boom, revenue growth in the Australia-Pacific region will slow considerably. We pare back Orica's revenue growth to 2.5% per annum from 2017, lower in the nearer term as favourable contracts expire. Orica shares have strengthened materially from December AUD 17 lows and, in conjunction with our fair value estimate reduction, now trade close to fair value.

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