The Orica Limited (ASX: ORI) share price has risen over 6% since releasing its Investor Day Presentation this week.
Orica is one of the largest suppliers of commercial explosives and blasting systems to the mining, quarrying, oil and gas and construction markets. Orica is also a major supplier of sodium cyanide for gold extraction and a specialist provider of ground support services in mining and tunnelling.
Why Orica’s Share Price Jumped
Orica released their Investor Day Presentation this week, wherein they explained its an excellent time to be a provider of blast management services.
Orica CEO Alberto Calderon outlined that by 2023 miners globally will move an additional 3.6 billion tonnes of material compared to 2018. Further, this will occur within increasingly complex environments, with many requiring sophisticated blast services such as those provided by Orica to mine safely and efficiently.
Further, the company outlined how its “High Growth Engine” should achieve double-digit-growth from its suite of products and services including:
- WebGen, a Wireless blast initiating system enhancing safety and efficiency for industry participants.
- BlastIQ, a cloud-based digital platform designed specifically to enable continuous improvement of blasting outcomes
- Monitoring and measurement businesses including DataCloud, OreTrack, FRAGTrack and GroundProbe.
Orica CFO Christoper Davis confirmed the company is committed to paying out between 40-70% of underlying earnings as dividends to shareholders. In 2016 Orica abandoned their progressive dividend policy when Revenue and NPAT fell 10% and 7%, respectively.
Is It Time To Buy Orica Shares?
Although there are reasons to be optimistic over Orica’s near-term future, I find it difficult to be bullish over the long term.
Orica is a cyclical business which benefits from increased volumes of material moved in times of increasing prices of commodities, such as coal, iron ore and gold. However, there will come a time when commodity prices fall and mining activity drops off and Orica will be negatively impacted.
With a price-earnings or P/E ratio of 37 times, a current dividend yield of 2.5% and a rocky road to sustained profitability growth (pun intended), I would prefer to own shares in other ASX companies.
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Disclosure: At the time of writing, William does not own shares in any of the companies mentioned.
