Elkem (Hold, TP: NOK37.00) - Not the new normal
Elkem’s Q3 results reflected record silicon and silicone prices, which have climbed further QTD, prompting management to guide for an even stronger result in Q4. We base our valuation of Elkem on silicon prices returning to more normalised levels of just under EUR2,000/t before end-2023e, and volatile DMC (silicone) prices converging towards RMB20,000–25,000/t after exceptionally strong stimulus-driven demand tapers off and more DMC capacity comes online before the start of 2023. We have raised our 2022–2023e EPS by 1–5%, but reiterate our HOLD and NOK37 target price. Silicone prices are unlikely to remain disconnected from the cost of production once China restores its energy balance. We believe the recent quadrupling of the silicon price is a short-term effect of restricted energy usage in China, which we expect to be restored near-term (Chinese coal prices have been the main driver of silicon prices over the past 10 years). For DMC, Baiinfo expects a 25% increase in globalcapacity in 2022e, which we believe is likely to see DMC prices return to more normalised levels, with demand tapering off as government infrastructure-targeted stimulus packages and Chinese post-Covid-19 support wrap up.Elkem ASA. Elkem ASA is a Norway-based supplier of silicon materials. Its operations comprise such segments as the Silicones that manufactures and sells siloxanes, a range of silicones, and a commoditized products produced by reacting silicon with methyl chloride through various chemical reactions and formulations; the Silicon Materials, which includes manufacturing and selling of various grades of metallurgical silicon and microsilica; the Foundry Products that provides metal treatment solutions to iron foundries and supplies specialty ferrosilicon to the steel industry, and the Carbon, which manufactures carbon electrode materials, lining materials and specialty carbon products for metallurgical processes. The Company serves customers in chemical, solar, electronics, aluminum, construction, refractory, oil and gas industries worldwide.
DNB Markets is the investment banking arm of DNB Bank ASA and is focused primarily on the Nordic region, as well as internationally on niches such as global shipping, energy and related services, and seafood. DNB Markets offers services in FICC, Equities and Investment Banking advisory from offices in Oslo, Stockholm, London, Singapore and New York. Equity research coverage is offered on c250 Nordic companies. DNB was ranked no.2 in Extel Nordic Research 2017. The DNB Markets’ Credit and FICC Macro & FX Research teams are repeatedly highly rated by Prospera Nordic Institutional Investor Surveys.
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