Company Analysis - Commissioned /
Bahrain

Aluminium Bahrain: Lower prices, higher opex trigger 2019f/20f earnings downgrade

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

    Tellimer Research
    1 August 2019
    Published by

    We update our estimates for Aluminium Bahrain (Alba) post its Q2 19 net loss of BHD3.3mn, which was in line with our estimate (see previous note). We now assume: (1) lower aluminium and alumina prices; (2) lower energy costs; and (3) higher operating expenses. This reduces our valuation estimate for Alba by 6% to BHD0.75/share. The stock trades at a 2019f PE of 30.4x and EV/EBITDA of 14.0x (versus its peers’ 12.9x and 7.4x, respectively). 

    2019f-23f realised prices trimmed by up to 10%. We now estimate 2019f and 2020f realised prices of US$2,042/tonne and US$2,062/tonne (previously US$2,144 and US$2,223). This is due to: (1) lower LME aluminium prices (using Bloomberg forecasts – see Figure 1) albeit slightly higher physical premiums (see Figure 2).

    Lower energy costs, higher opex in 2019f-23f. Based on the new information available in the company’s sustainability report regarding energy consumption (see here), we reduce our 2019f energy costs by 1% to US$414/tonne (previously US$417/tonne). For the period 2020f-23f, we estimate 3% to 6% lower costs for every tonne of production. We also expect 2019f-23f operating expenses to be 38% higher versus our previous forecasts, driven by higher insurance on freight and as well as higher administrative expenses. 

    Ali Al Baqali replaces Tim Murray to serve as acting CEO from today (1 August 2019). Ali has been the Deputy CEO and Chief Supply Chain Officer at Alba. He is one of the most senior executives, having served at the firm since 1998, and as CFO during 2013-17.