Alumina Limited 

AWC Details

H1FY21 Result Highlights: Alumina Limited (ASX: AWC) is a metal and mining company with a 40% interest in the Alcoa World Alumina & Chemicals (AWAC), a leading global bauxite and alumina business.

• Rise in Net receipts from AWAC: For H1FY21, AWAC reported net receipts from AWAC of US$137.0 million, up 52% on pcp, supported by record bauxite and alumina production over the period.
• Increase in Dividend: Despite challenging operating conditions, the company has increased its interim dividend by 21% to 3.4 US cents per share as compared to 2.8 cents in H1FY20. The interim dividend has a record date of 30 August 2021 and payment date of 15 September 2021.
• Higher Freight Costs: During H1FY21, the company witnessed increased released alumina prices, but it was offset by significantly higher freight costs contributed to by global shipping disruptions.
• Decline in NPAT: Net profit after tax for H1FY21 stood at US$73.6 million, down by 19% on pcp.

AWAC Refinery Update: The company recently notified about the damage to a bauxite ship unloader at the AWAC refinery at Alumar, Brazil. The company has informed that the refinery has reduced total daily production by one-third, to about 7,000 tonnes per day.

Key Risks:  The company is exposed to the risks related to the shipping disruptions caused by the impacts of the COVID-19 pandemic. The company is also exposed to the risks related to fluctuations in Aluminium prices.

Outlook: Looking ahead, the company expects the non-China alumina surplus to contract which will positively impact aluminium prices. For FY21, the aluminium production from AWAC is expected to be around 12.8M tonnes.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:  The stock has provided a return of ~19.82% in the last one month and ~18.10% in the last six months. The stock is currently trading higher than the average 52-week price level band of $1.345 and $2.180. On the technical analysis front, the stock has a support level of $1.95 and resistance of $2.15. The stock has been valued using P/E multiple based illustrative relative valuation method and have arrived at a target price with a correction of mid-single digit (in % terms). The company can trade at some discount to its peers’ average, considering the uncertainty surrounding the impact of COVID-19 pandemic, and higher freight costs. For the valuation purpose, peers such as Iluka Resources Ltd (ASX: ILU), Capral Ltd (ASX: CAA), Pilbara Minerals Ltd (ASX: PLS), etc. have been considered. Considering the company’s current trading level, decent returns in the last one and six months period, risks related to the shipping disruptions caused by the COVID-19 pandemic, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $2.085, as on 6 September 2021, 11:30 PM (GMT+10), Sydney, Eastern Australia).

AWC Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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