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Volatile economy brings Alumina Ltd share price down
Edited by : AL CIRCLE
2 min read
The share price of Alumina Ltd ((AWC)) has returned to GFC lows in recent months, impacted by ongoing volatility in global equity markets, falling aluminium prices and a still strong Australian dollar.
Even allowing for the recent share price falls Citi sees limited upside in Alumina Ltd at present and so retains a Neutral rating. This reflects a cautious outlook for both alumina and aluminium, little in the way of production growth for the company and a lack of earnings and cash flows.
The other issue in Citi's view is margins for Alumina remain under pressure. In the first quarter Citi notes alumina margins for AWAC were US$35 per tonne, but since the end of the March quarter the alumina price has fallen further.
This is adding to margin pressure and is offsetting some of the benefits of lower costs, while Citi sees an ongoing surplus in the aluminium market in coming years and expects this will continue to weigh on margins for AWAC, Alumina's joint venture with Alcoa of the US.
As evidence of this, Citi is now forecasting and average EBITDA margin of US$40 per tonne this year and US$55 per tonne in 2013. This compares to a 10-year average EBITDA margin of around US$67 per tonne.
Following a review of its model, Citi has cut its earnings estimates for Alumina for both 2012 and 2013. For this year the broker has moved from forecasting a profit of US$34 million to a loss of US$33 million, while in 2013 Citi's numbers have been reduced by 67% to a profit of US$63 million.
Even allowing for the recent share price falls Citi sees limited upside in Alumina Ltd at present and so retains a Neutral rating. This reflects a cautious outlook for both alumina and aluminium, little in the way of production growth for the company and a lack of earnings and cash flows.
The other issue in Citi's view is margins for Alumina remain under pressure. In the first quarter Citi notes alumina margins for AWAC were US$35 per tonne, but since the end of the March quarter the alumina price has fallen further.
This is adding to margin pressure and is offsetting some of the benefits of lower costs, while Citi sees an ongoing surplus in the aluminium market in coming years and expects this will continue to weigh on margins for AWAC, Alumina's joint venture with Alcoa of the US.
As evidence of this, Citi is now forecasting and average EBITDA margin of US$40 per tonne this year and US$55 per tonne in 2013. This compares to a 10-year average EBITDA margin of around US$67 per tonne.
Following a review of its model, Citi has cut its earnings estimates for Alumina for both 2012 and 2013. For this year the broker has moved from forecasting a profit of US$34 million to a loss of US$33 million, while in 2013 Citi's numbers have been reduced by 67% to a profit of US$63 million.
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