Orica CEO Sanjeev Gandhi has repeated his claim that the A$8 billion Australian company has no major new acquisitions in its deal pipeline at the moment while taking aim at recent mining software acquisition price multiples.
Speaking at an Orica investor day he said the company’s M&A team, led by Ellen Thomas, continued to screen up to 40 potential acquisition targets. It spent nearly US$800 million buying Terra Insights, Axis Mining Technology and GroundProbe, with the latter deal going back to 2017. The three significant acquisitions plus Orica’s blasting tech developments underpin a circa-US$190 million-a-year Digital Solutions business with orebody intelligence, blast design and execution and geosolutions dimensions.
US investment bank Morgan Stanley said last week in a note growth in the digital business was important “as we see it justifying a higher [group] multiple going forward as it increases in importance”.
“We note that consensus expectations look for revenue CAGR of 13% and EBIT [earnings before interest and tax] CAGR of 18% between FY24 and FY28,” the bank said.
Orica has laid out an “aspirational” aim to generate 50% of EBIT from its technology and specialty chemicals arms in what analysts described as “the mid-term”. It is forecasting “low double digit” growth for Orica Digital Solutions and “mid-single digit” growth for Specialty Mining Chemicals.
“If we can get to the 50-50 in 10 years I think it’s a massive success for us,” Gandhi said.
“I’m sure we get it earlier because we have got plans.”
They will almost certainly include further meaningful acquisitions, though Gandhi said, at the moment, “I don’t think there’s anything out there that we’d be ultra keen to grab”.
“Having said that I’ve also said that if there’s something interesting I want a seat at the table always,” he said.
“We continue to screen but there’s nothing major in the pipeline at the moment given the uncertainty in the market. It’s not a surprise that there are not too many sellers and there are not too many buyers today because people want to have a bit of stability and the valuations do not support the expectation.
“Despite that there have been a couple of deals happening in the last weeks in the digital space where multiples are still 20-plus and we are not paying those multiples. No way.
“We are extremely disciplined. We screen through 20, 30 [or] 40 potential targets every year. Maybe we do one every second year as our track record has shown. So there’s nothing major in the pipeline but that does not mean that Ellen and the team have taken a vacation. They are very busy looking at potential targets.
“It’s changed a bit. In the past we had to go hunting to look for targets. Today we just wait and the world knows that we’ve done a few successful acquisitions and we’ll always look at something.
“People come to us now with deals and so that means that we’re always busy.”
A A$400 million Orica share buyback announced as part of a revised capital management framework was generally applauded by analysts. It is slated to start at the end of this month and continue over 12 months.
“We are committed to executing and finishing the buyback unless something really surprising happens,” Gandhi said.
Morgan Stanley said Orica’s focus on organic growth was important.
“Investor confidence was challenged by a number of acquisitions that occurred in the tech space with these acquisitions seemingly outside of Orica’s core business and difficult to assess from the outside,” it said.
“These concerns were compounded by the supporting equity raises particularly when it appeared rica over-raised to fund these acquisitions. We think going forward the market will want to see a period of focus on organic growth.”
