Company Analysis - Commissioned /
Bahrain

Aluminium Bahrain: Strong Q4 19, 20%+ FCF yield not priced in

  • We update our estimates for Aluminium Bahrain (Alba) post Q4 19’s better-than-expected net profit of BHD13.6mn

  • We increase our 2020f-24f realised price estimates by up to 13%

  • Coronavirus-led supply disruption to temporarily escalate alumina prices

Vahaj Ahmed
Vahaj Ahmed

Head of Industrials Equity Research

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Tellimer Research
2 March 2020
Published byTellimer Research

We update our estimates for Aluminium Bahrain (Alba) post Q4 19’s better-than-expected net profit of BHD13.6mn (versus our estimate of BHD13.0mn) and an unexpected cash dividend of BHD0.001 – see preview note. The stock trades at a 2020f PE of 24.2x and EV/EBITDA of 6.8x (versus its peers’ 10.6x and 5.9x, respectively), and offers a 2020f and 2021f free cash flow (FCF) yield of 25% and 29%, respectively. We assume higher aluminium and alumina prices for 2020f-24f but keep our valuation estimate unchanged at BHD0.65/share, implying upside of 47% from current levels.

We increase our 2020f-24f realised price estimates by up to 13%. We now estimate 2020f realised prices of US$1,910/tonne (1% higher versus US$1,884 previously). For 2021f-24f, we now assume up to 13% higher realised prices. This is mainly due to higher LME aluminium prices (using Bloomberg forecasts – see Figure 1) albeit lower physical premiums (see Figure 2).

Coronavirus-led supply disruption to temporarily escalate alumina prices. Alumina prices have increased by 4% since mid-January. According to Metal Bulletin, many refineries in China have reduced production as haulage issues limit their bauxite and coal bauxite supply. However, this uptrend could be short-lived as China still has alumina inventory at some ports and continues to import to meet the deficit – China produces c57% of the world’s primary aluminium and c55% of global alumina. We now expect 2% higher alumina prices in 2020f. As a result, our EBITDA estimates drop by up to 80bps to 18.4% in Q3 20 (versus 19.2% in Q4 19) before rising to 20.2% in Q4 20 (driven mainly by aluminium price forecasts. We maintain our long-term LME aluminium price assumption of US$2,150/tonne and all-in delivered alumina price assumption of US$400/tonne; see Table 5 for fair value sensitivity to different aluminium and alumina prices.