Elkem (Hold, TP: NOK37.00) - Record-high prices and low supply
We expect a record-high EPS of NOK1.95 in Q3 (results due at 07:00 CET on 27 October), driven by appreciating DMC and silicon prices. We believe earnings will be even higher in Q4 and early 2022e, as energy shortages in China are limiting silicon supply, boosting margins for Elkem’s European silicon production. We continue to believe DMC prices should converge towards a more normalised level of RMB23,000/t in 2023, when Chinese silicon production is set to return to normal. We acknowledge that Elkem could return considerable cash to its owners in this environment of record-high prices; thus, we have raised our target price to NOK37 (34). We reiterate our HOLD.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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