Report
Andrew Lane
EUR 850.00 For Business Accounts Only

Morningstar | Hydro Cleared to Resume Normal Production at Alunorte; Shares Fairly Valued vs. Our NOK 34 FVE

Norsk Hydro's shares rallied after the Brazilian federal court lifted a production embargo on the company's Alunorte refinery. The facility had run at a mandated 50% capacity utilization rate since the embargo was enacted in late February 2018. Sanctions stemmed from concerns about local water contamination in light of heavy rainfall and local flooding. Without any necessary updates for our model, our NOK 34 fair value estimate is unchanged. Our no-moat rating is also intact.

The timing of this news falls roughly in line with our projected resolution timeline. Our valuation model reflects a 75% utilization rate in the second quarter, 90% in the third quarter, and 95% by year-end and thereafter. In response to the embargo being lifted, Hydro indicated that the facility would reach 75%-85% utilization within two months. In addition, a new press filter will be initiated in the third quarter, which will further boost capacity. For 2019, we forecast alumina production just shy of 5 million tonnes versus Alunorte's stated capacity of 6.3 million tonnes per year.

Although alumina prices have softened in recent months, they remain elevated versus historical levels, and Alunorte's operating margins should be restored to levels safely above those of the broader company. After their May 21 rally, the shares are trading roughly in line with our fair value estimate, currently in 3-star territory when accounting for our very high uncertainty rating.
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.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Andrew Lane

Other Reports on these Companies
Other Reports from Morningstar

ResearchPool Subscriptions

Get the most out of your insights

Get in touch