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I’m on a mission to highlight some of the most promising dividend-paying stocks on the ASX. My goal is to equip readers with essential insights and forecasts to aid in making informed investment decisions. Today, I focus on Nickel Industries.
Overview of Nickel Industries
Nickel Industries (ASX: NIC) is a nickel producer based in Indonesia that is in the process of shifting from traditional nickel pig iron (NPI) for stainless steel production to higher-value battery-grade nickel and cobalt products. While the company has a range of projects with various ownership structures and production outputs that may seem complex, it maintains a robust cash-generating ability and shows resilience even amidst subdued nickel prices. A recent UBS report forecasts attractive dividend yields between 7% and 12% over the next three years.
Why Nickel Industries Stands Out
In a challenging market, Nickel Industries has managed to hold its ground, especially compared to the broader nickel sector. Nickel prices have plummeted nearly 50% since 2023, causing a 20% dip in the company’s stock value. However, this decline is relatively mild compared to the widespread struggles faced by many Australian nickel miners, which have had to enter administration or reduce operations due to rising costs and low prices.
Operational Performance
Despite the negative impact on share prices, Nickel Industries reported a loss of US$189.8 million after tax in its FY24 results, largely due to a US$205 million impairment related to older projects that lack integrated power supplies. Nevertheless, it achieved a gross profit of US$186.7 million and continued to reward investors with a dividend of four cents per share.
Cost Competitiveness
UBS analysts predict that nickel markets will remain oversupplied until at least 2028, with demand growth slowing to between 4-5% annually, down from 9% in previous cycles. Still, with nickel prices currently at around 75% of the industry cost curve, analysts believe that any significant downside risk is limited at the current spot price of US$6.80 per pound. Nickel Industries’ operations in Indonesia are positioned among the lowest production costs globally, providing a safeguard against potential commodity price declines.
Prospects for Expansion in Indonesia
Recent discussions with regional analysts have given UBS confidence that Nickel Industries may increase its RKAB (mining business licence) quota in Indonesia. The company’s Indonesian partner, Hengjaya, appears well-positioned to gain priority due to its integration with downstream processing assets. Such quota expansion would significantly boost production from operations like the Sampala project, creating growth opportunities even in a challenging commodity environment.
Debt Management Concerns
Despite some operational advantages, UBS has raised concerns regarding the company’s financial health, as it faces upcoming debt repayments for unsecured notes beginning in October. The structure and timing of any necessary debt refinancing will be crucial for maintaining financial flexibility, especially since, as of December 31, 2024, Nickel Industries had US$222.5 million in cash against US$1.05 billion in debt, resulting in a net debt position of US$832.1 million.
Earnings and Dividend Projections
According to UBS, as of July 21, the forecasts for earnings and dividends are as follows:
| Metric | FY24 | FY25e | FY26e | FY27e |
|---|---|---|---|---|
| Revenue (US$m) | 1,744 | 1,922 | 2,479 | 2,768 |
| Net earnings (US$m) | (169) | 153 | 314 | 424 |
| Dividend per share (US$) | 0.04 | 0.04 | 0.04 | 0.07 |
| Dividend yield (%) | 7.0% | 8.5% | 7.8% | 12.1% |
| Net debt/EBITDA | 17.0 | 1.2 | 0.6 | 0.0 |
Conclusion
Despite the volatile market dynamics, analysts believe that Nickel Industries is well-placed operationally and strategically to continue generating earnings and delivering dividends to shareholders. The demand landscape is challenging, particularly due to reduced stainless steel output in China and Indonesia and weakened electric vehicle market sentiment, which has impacted battery-related nickel demand.
However, as supply constraints become increasingly relevant, UBS anticipates the supply growth rate will slow from around 10% between 2021-2023 to below 5% from 2025-2027. This deceleration is expected as higher-cost operations shut down or postpone production, thereby favouring cost-efficient producers like Nickel Industries in a rebalanced supply-demand environment.
