On the back of supportive markets, Norsk Hydro reported impressive Q2 results. All divisions, ex. B&A, contributed in varying degrees and helped limit the impact of cost headwinds. With aluminium being better positioned vis-à-vis other base metals, Norsk’s recovery momentum should sustain and, hence, our positive recommendation is reiterated.
Companies: NORSK HYDRO (NHY:STO)Norsk Hydro ASA (NHY:OSL)
Performance recovery momentum at Norsk Hydro has been maintained. This has been a function of both improving markets across the value chain and effective internal measures. The good part is that all key divisions posted impressive gains and this momentum is likely to be maintained. Add on top Norsk’s sustainability + integration focus/edge, the stock remains an attractive bet.
The Rolled Products division is being sold to KPS Capital Partners for an EV consideration of €1.4bn. While the price is much below our estimates, an exit was perhaps management’s last resort. Nevertheless, this outcome paves the way for faster earnings improvement and, hence, supports the scenario of healthier dividends.
Barring some initial bottlenecks, COVID-19 failed to derail Norsk’s 2020 operational recovery. More importantly, this rebound was led by key divisions – accounting for >75% of the group’s capital employed. While the 2020 dividend was flat vs. 2019, the new dividend policy is a reflection of the group planning to reward (patient) shareholders, once incremental cash flows start kicking-in. Besides promising aluminium market fundamentals, Norsk’s investment case is further strengthened by its green
Companies: Norsk Hydro ASA
Hydro will report its Q4 results on 12 February and we now expect an underlying EBIT of NOK 1,364m (1,245) vs consensus at NOK 1,385m. We have raised our 2021/22 estimates by 37%/30% on the back of a firmer LME price, to some extent offset by a stronger NOK. We see several potential triggers during 2021, mainly related to Hydro’s renewable growth initiatives. We stick to Buy and lift our target price to NOK 45 (35) following our earnings revision.
Norsk Hydro has unveiled a long-term roadmap wherein, besides targeting further profit improvements, the group reiterated its sustainability plans and, more importantly, upped the ante for the pursual of green business opportunities. These are valuable virtues, especially given Norsk’s disproportionate business exposure to the developed markets, unlike many peers – which are highly China-dependent.
CapEx guiding lowered by NOK 500m annually from 2021
Targets EBITDA uplift of NOK 1-1.5bn within scrap by 2025
Strong renewable focus, targets > 1GW capacity, profitable battery unit
Improvement program on track, raises the bar by NOK 1.2bn by 2025
Despite (aluminium) prices remaining (much-)weaker in yoy terms, Norsk Hydro witnessed valuable operating improvements in Q3 – largely driven by Extruded Solutions. Also, varying sequential gains materialised in the mid-stream and downstream divisions.
While the aluminium market recovery is still in its early days – with immediate-term bottom-line weakness (due to FX headwinds) being unavoidable, Norsk’s value (chain) proposition remains intact. Add in the clean energy focus – especially post t
Norsk Hydro reported Q3/20 results well ahead of expectations, mainly due to strong results from its Extruded Solutions segment. Outlook has improved, and we have raised our estimates by some 50% for 2020 – 2022. The company is set to benefit from an improved energy contract, as well as CO2 compensation (not yet factored into our estimates) from 2021. We stick to our Buy rating while raising our target price to NOK 35 (30).
Underlying EBIT of NOK 1,407m (Arctic: NOK 289m, Cons.: NOK 179m)
NIBD reached NOK 9.9bn – we expected NOK 14.5bn
Expects global 2020 primary alu surplus of 3.6mt (4.7 in Q2/20)
Estimates to be raised, we stick to BUY
The EU’s recent emphasis on the criticality of natural resources to fulfill its long-term carbon-neutrality targets has shed light on the strategic importance of bauxite and, hence, Norsk Hydro. While the Norwegian aluminium giant has had its fair share of misfortune in recent years, its long-term value proposition still holds true. Hence, Norsk remains our preferred commodity (sector) play to capitalise on the EU’s unwavered focus – despite the pandemic – on a cleaner environment.
After a euphoric Q1, Norsk’s Q2 results were pretty weak. While B&A’s recovery momentum was maintained, all other divisions were wrong-footed by the pandemic – despite impressive (unit) cost reductions. The all important Primary Metal and Extruded Solutions witnessed pertinent pressure.
As demand recovery might take longer, rationalisation of the near-term performance estimates seems inevitable. However, given Norsk’s underlying strengths – environmentally, geographically and balance sheet-wise
Underlying EBIT of NOK 949m (Arctic: NOK 285m, Cons.: NOK 594m)
NIBD reached NOK 13.2bn – in line with our NOK 13.6bn forecast
Expects global primary aluminium surplus of 3.1 – 4.7mt during FY/20
We expect share price relief – time to take some profit?
Norsk Hydro will release its Q2/20 results on Wednesday 22 July. We have only fine-tuned our quarterly price assumptions in this preview, but have raised our estimates somewhat on the back of a weaker NOK as well as lower cost assumptions. We now expect an underlying EBIT of NOK 285m (101) – below consensus at NOK 412m. The main focus will be towards potential write-downs as well as outlook comments. We stick to our Buy rating and NOK 30 TP.
Hydro reported a welcome earnings beat, with an underlying EBIT of NOK 2,247m vs our NOK 1,352m forecast. We have raised our estimates, mainly due to lower than expected costs offsetting negative revisions for the downstream segments. Trading at a P/B of 0.59x, we stick to our Buy rating and NOK 30 target price, but we highlight high market risk short-term.
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Companies: Trifast plc
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Companies: Trinity Exploration & Production Plc