DnB Markets - Norsk Hydro ASA (NHY) EBIT cut on Rolled and FX

Report

DnB Markets

Eivind Sars Veddeng

EBIT cut on Rolled and FX

Norsk Hydro (NHY NO, Hold) - EBIT cut on Rolled and FX
(18 pages)

26/07/2017 18 EN

Underlying

Norsk Hydro ASA

Norsk Hydro is an aluminium group based in Norway. Co. is engaged in the supply of aluminium and aluminium products. Co. supplies casthouse products, such as extrusion ingots, sheet ingots and foundry alloys. Co's customers are active in sectors such as the packaging, lithographic, building, automotive and transport sectors. In addition, Co. is engaged in the production of power in Norway. Its business is divided into six operating segments: Bauxite & Alumina, Primary Metal, Metal Markets, Rolled Products, and Energy and Other and Eliminations.

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NO0005052605 Oslo Bors Norway

Provider

DnB Markets

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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Analysts

Eivind Sars Veddeng

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Norsk Hydro (Sell, TP: NOK50.00) - 30% below 2025e EPS consensus

We expect aluminium prices to come down with falling global energy prices, and reiterate our SELL and NOK50 target price. We are 30% below consensus on 2025e EBITDA; we do not see large enough demand to raise aluminium prices above the marginal producer’s cost, as suggested by the price appreciation in recent weeks, we believe. We expect Q1 EBITDA of NOK6.2bn (results due at 7:00 CET on 24 April), driven by high hydropower production volumes in the quarter. We have reduced our 2025–2026e EPS by ~1%, primarily on lower electricity price futures.

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Norsk Hydro (Sell, TP: NOK50.00) - Little support for 22% EPS growth

Q4 EBITDA was 13% below consensus and we consider consensus 2023–2026e EPS CAGR of 22% too high (NOK7.8 in 2026e). Norsk Hydro’s earnings are closely linked to energy prices, and we expect global energy prices to continue to decline. Annually, EPS averaged NOK2.2 in the 10 years prior to Russia’s invasion of Ukraine, with lower energy prices. We have cut our 2024-2025e aluminium price forecast by USD50/t and our Norwegian electricity price by EUR10/Mwh, and our 2024–2025e EPS by 6–9%. We reiterate our SELL and have reduced our target price to NOK50 (55).

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February 14, 2024 February 14, 2024 1 EN

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Norsk Hydro (Sell, TP: NOK55.00) - Consensus too optimistic on 2025e

We are 20% below consensus on 2025e EPS, as we believe declining global energy prices will push aluminium prices down further, and not up as consensus estimates. Non-core earnings, which we highlighted to be NOK8bn per year 12 months ago, have shrunk to NOK3.5bn, and we believe they will decline further. We have trimmed our 2024–2025e EPS by 1–2%, and reiterate our SELL and NOK55 target price. We estimate Q4 EPS of NOK0.8 and a 2023e DPS of NOK2.8 (results due at 07:00 CET on 14 February).

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Elkem (Hold, TP: NOK20.00) - Muddling through

Q1 EBITDA was largely in line with our forecast and consensus, while EPS took a hit from derivative losses. We have reduced our 2025–2026e EPS by 6% and our target price to NOK20 (22). Although the balance sheet looks fragile at a NIBD/EBITDA of 3.5x and ICR of 4.2x, we believe higher silicon prices should pull it into healthier territories from Q2. However, we have cut our 2024–2025e DPS to zero. We reiterate our HOLD as we expect the silicones market to continue to struggle with overcapacity, while silicon prices likely remain at current levels and carbon prices come down somewhat on lower m...

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CEO Björn Rosengren’s penultimate report before retiring highlighted the structural improvements made at ABB under his tenure as margins beat our expectations and consensus, and the 2024 margin guidance was raised. We have upgraded to BUY (HOLD) and raised our target price to SEK595 (520), having increased our 2024–2026e operating EBITA by 5–4%. At 15.2x 2024e EV/EBIT (10-year average 15.0x), we believe the stock deserves further re-rating as the valuation still seems to be anchored in historically depressed multiples rather than reflecting the improved qualities of the ‘new’ ABB, which offers...

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Following the poor investor reception at its CMU, Equinor’s share price has recovered to pre-CMU levels. While some attribute this to Equinor showing discipline by not winning the Sørlige Nordsjø II offshore wind auction, we believe it is due to its peer group of European majors trading higher in recent weeks, as Equinor’s ~15% premium valuation to peers has remained stable. Our Q1e adj. EBIT is 1% above consensus. We reiterate our HOLD, but have raised our target price to NOK300 (280).

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EBIT cut on Rolled and FX

Norsk Hydro (Sell, TP: NOK50.00) - 30% below 2025e EPS consensus

Norsk Hydro (Sell, TP: NOK50.00) - Little support for 22% EPS growth

Norsk Hydro (Sell, TP: NOK55.00) - Consensus too optimistic on 2025e

Elkem (Hold, TP: NOK20.00) - Muddling through

ABB (Buy, TP: SEK595.00) - Non, je ne regrette rien

Equinor (Hold, TP: NOK300.00) - Stable valuation relative to peers

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