AMAG confirmed at HOLD, TP EUR 30 - Stalling earnings momentum
Although last business year ended on a solid note with 4Q EBITDA ahead of expectations and compelling FCF generation, FY 19 operating earnings adjusted for valuation effects were down yoy as the improving upstream earnings power could not fully compensate for the sequentially softer momentum in the downstream divisions in 2H. Against the backdrop of the prevailing trading conditions, we assume that also FY 20e could be determined by a lack of earnings momentum, mirrored by a reduction of our EBITDA forecast to EUR 137 mn (company to give guidance on April 30, alongside its 1Q results). In absence of an apparent catalyst, we anticipate a rather range-bound share price development. We stand by our view that the valuation (premium of roughly 100% to peers on P/E and 60-70% on EV/EBITDA) fully reflects the quality of the business model (above all shaped by the low-cost hydro-based Alouette smelter and the vastly scrap-based cast and rolled products) as well as the scope for earnings improvement beyond the current year. The dividend yield of 4.3% is compelling but we note that on our estimates, FY 20e would be the second consecutive year where DPS exceeds EPS. We maintain the HOLD rating and trim the target price to EUR 30 from EUR 31.AMAG Austria Metall is a holding company, engaged in the production of primary aluminum, as well as cast and rolled aluminum products. The metal division is responsible for the risk management and steering of the metal flows. The casting division recycles aluminum scrap to produce foundry alloys. Its product portfolio covers aluminum materials tailored to customer requirements in the form of ingots, sows and liquid aluminum. The rolling division is responsible for the production and sale of rolled products, and precision cast and rolled plates. The service division include facility management, energy supplies, waste disposal, and purchasing and materials management.
The Institutional Equity Research team of Raiffeisen Bank International AG covers 85 stocks from Austria, Central & Eastern Europe with sell-side research and thus levers our local broker status with excellent company relationships. For corporates in Austria, CEE and Western Europe, we offer co-sponsored research, which includes research coverage and marketing activities to investors. Additionally, through our Spotlight Research product we also shed light on leading European small and micro-caps, seeking greater visibility with investors.
The Institutional Equity Research team consists of roughly 15 analysts, both in Vienna and the CEE countries. Our analysts provide long-standing sector expertise in tandem with profound local market know how and a sectoral approach across the entire region.
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