Orica shares lift as Citi impressed by optimistic update
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More news: Orica shares climbed after the chemicals and explosives business hailed a "strong finish" to its financial year, which ends this month.
Orica shares were up 1.5% to $21.07 at 2:50pm AEST. The stock is up 18.6% over the last 12 months.
Citi analyst William Park said Orica is "exuding optimism" after reiterating earnings growth across all segments during the second-half period.
"Continuation of solid momentum being demonstrated in [the second half] is a testament to [Orica's] unwavering focus on commercial discipline," he said.
Citi has a 'buy' rating on the stock with a target price of $20.65.
However, RBC Capital Markets analyst Owen Birrell said the trading update was "net negative on balance, but not sufficient to derail our Outperform view".
He called Orica's rise in legal and litigation costs, which will be recognised as significant items for the period, "unfortunate, but understandable"
RBC has a $23 price target on the stock.
What they said: "Today's update provides useful qualitative commentary for a business that is becoming increasingly challenging to model," Birrell said.
"While overall blasting solutions in APAC & Asia and North America is likely to be slightly weaker than we had previously assumed on lower thermal coal volumes in both regions, the potential for improved margins on a better mix suggests some moderation of this direct negative impact to their earnings contribution."
Orica flags 'strong finish' to FY25 but litigation drives up costs
The news: Chemicals and explosives maker Orica said it has seen a "strong finish to the financial year", after reporting a first-half loss in May, but flagged that net finance costs are expected to be at the upper end of its guidance range.
The numbers: Orica said second-half earnings from its three core segments are on track to be higher than the prior corresponding period, but net finance costs are set to end at the top of its $190-200 million guidance range.
Litigation costs for ongoing intellectual property and commercial disputes of $50-54 million pre-tax, or $39-42 million after tax, will be recognised as second-half significant items.
These relate to the company's successful defence of key patents underpinning its WebGen technology in Australia. Orica's North American operations are also facing a long-running lawsuit.
The context: The group said its blasting solutions business continues to perform strongly, with earnings growth partly offset by lower volumes in Indonesia and the US due to reduced demand for thermal coal.
Orica's digital solutions segment has been supported by increased exploration activity, particularly in gold and copper, while its specialty mining chemicals division benefited from new contract awards in cyanide and emulsifiers.
The sources: ASX, RBC Capital research, Citi research
