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Orica Ltd

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Morningstar Rating for Stocks Fair Value Economic Moat Capital Allocation

No-Moat Orica Meets Fiscal-Year 2019 Earnings Expectations and Projects More Growth in Fiscal 2020

We make no change to our AUD 17.00 fair value estimate for no-moat Orica Limited. The company reported a 15% increase in underlying fiscal 2019 NPAT to AUD 372 million, only marginally below our AUD 388 million expectations. Orica shares have almost doubled from June 2016 sub-AUD 12 lows, but are now materially overvalued. We expect the market either over-projects the earnings growth or under-prices for risk, or some combination. Simply lowering the discount rate applied to our forecast cash flows to 7.9% from our base case 9.4%, would increase its fair value to AUD 21.50.

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