Orica (ASX:ORI) Could Be 7% Undervalued After Hunter Valley Green Hydrogen Decision

Orica (ASX:ORI) has confirmed it will proceed with a commercial scale green hydrogen facility in the Hunter Valley, aiming to cut emissions by partially replacing natural gas feedstock within its existing operations.

See our latest analysis for Orica.

Orica’s green hydrogen decision comes after a period where short term share price momentum has picked up, with a 90 day share price return of 18.56%, while the 1 year and 5 year total shareholder returns of 25.56% and 105.89% point to stronger longer term outcomes.

If this decarbonisation push has you thinking about other energy transition plays, it could be worth scanning infrastructure suppliers in power and grid equipment via the 35 power grid technology and infrastructure stocks

With Orica shares returning 25.56% over 1 year and 105.89% over 5 years, and trading at A$24.08 against an average analyst target of A$25.85, is there still a buying opportunity here, or is future growth already priced in?

Most Popular Narrative: 6.6% Undervalued

On the most followed narrative, Orica’s fair value sits at A$25.79, a touch above the last close of A$24.08, with that view built on detailed forecasts and a 7.52% discount rate.

Orica’s strategic acquisitions of Terra Insights and Cyanco are expected to contribute significantly to future earnings, particularly through full-year integration benefits, cross-selling opportunities, and enhanced product offerings, driving revenue and earnings growth.

Read the complete narrative.

Curious what kind of revenue path, margin lift, and earnings multiple forecast supports that A$25.79 fair value and the implied upside from today’s price? The narrative outlines a detailed glide path for earnings and profitability, as well as how much multiple compression is incorporated into the story.

Result: Fair Value of A$25.79 (UNDERVALUED)

Have a read of the narrative in full and understand what’s behind the forecasts.

However, Orica’s story could look different if delays in sodium cyanide supply upgrades persist or if acquisition integration costs weigh more heavily on margins and earnings.

Find out about the key risks to this Orica narrative.

Another View: Orica Through the Profit Multiple Lens

While the SWS model points to Orica being 60.8% below its A$61.42 future cash flow value, the current P/E of 44.5x paints a tighter picture. It sits above peers at 38.1x, the global chemicals group at 22.5x, and even the 19.7x fair ratio that the market could move towards. That leaves a key question for you: are you more comfortable with the cash flow story or the earnings multiple signal?

To see how that earnings multiple assessment is built and what would need to change for the gap to close, take a look at our valuation breakdown via the See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

If this mix of opportunity and concern around Orica has you thinking, do not wait too long to test the numbers yourself and stress test your own thesis by weighing the 3 key rewards and 1 important warning sign

Looking for more investment ideas beyond Orica?

Orica might be front of mind today, but you do not want your watchlist to stop there. Use focused stock lists to pressure test and broaden your ideas.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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