Alro: When it pays to be European (BUY - initiation of coverage)
We initiate coverage of Alro (ALR RO) with a BUY recommendation and a 12M price target (PT) of RON 4.4/share, implying 55% upside. Alro is one of the largest aluminium producers in Europe, accounting for 14% of EU-27 primary production in 2020. The company sells c.230kt annually of processed and primary aluminium and is looking to expand capacity in recycling and processed products. We expect it to continue to benefit from the State aid scheme compensating for indirect emissions costs, which we assume could lift its EBITDA margin toward 18-20%, starting in 2021E. Even though the base was high last year, as the company booked compensation of RON 652m related to indirect emissions costs for 2019 and 2020, we still expect Alro to deliver EBITDA and earnings CAGRs for 2020-25E of 7% and 5%, respectively. Based on its cash generation capacity, we expect that it could start paying dividends again next year, and the average yield over 2021-25E could easily surpass 10%.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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